People often have to make decisions under uncertainty—that is, in situations where the probabilities of obtaining a payoff are unknown or at least difficult to ascertain. One solution to this problem is to infer the probability from the magnitude of the potential payoff and thus exploit the inverse relationship between payoffs and probabilities that occurs in many domains in the environment. Here, we investigated how the mind may implement such a solution: (1) Do people learn about risk–reward relationships from the environment—and if so, how? (2) How do learned risk–reward relationships impact preferences in decision-making under uncertainty? Across three experiments (N = 352), we found that participants can learn risk–reward relationships from being exposed to choice environments with a negative, positive, or uncorrelated risk–reward relationship. They were able to learn the associations both from gambles with explicitly stated payoffs and probabilities (Experiments 1 & 2) and from gambles about epistemic events (Experiment 3). In subsequent decisions under uncertainty, participants often exploited the learned association by inferring probabilities from the magnitudes of the payoffs. This inference systematically influenced their preferences under uncertainty: Participants who had been exposed to a negative risk–reward relationship tended to prefer the uncertain option over a smaller sure option for low payoffs, but not for high payoffs. This pattern reversed in the positive condition and disappeared in the uncorrelated condition. This adaptive change in preferences is consistent with the use of the risk–reward heuristic.
Citation: Leuker, C., Pachur, T., Hertwig, R., & Pleskac, T. J. (2018). Exploiting risk–reward structures in decision making under uncertainty. Cognition, 175, 186–200. https://doi.org/10.1016/j.cognition.2018.02.019