Replicated alternatives and the role of confusion, chasing, and regret in decisions from experience

Eyal Ert, Ido Erev*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

39 Scopus citations

Abstract

The current paper explores choice among alternatives that can be classified into distinct classes. All the members of a particular class were 'replicated alternatives': they promised the same payoff distribution. Information to decision makers was limited to feedback concerning the realized (obtained and foregone) payoffs. Experiment 1 demonstrates that increasing the number of replicated alternatives creates confusion (which facilitates random choice) and changes the implications of the tendency to chase recent returns (i.e., select the alternative with the best recent outcomes). This effect, termed 'confused chasing,' facilitates risk seeking even when this behavior impairs expected earnings. Experiment 2 reveals that increasing the number of replicated alternatives can reduce (but does not eliminate) the tendency to underweight rare events. Experiment 3 shows that the relative importance of chasing and confusion is sensitive to the likelihood of realizing lower payoffs than the forgone payoffs. The main results are summarized with a simple model assuming that payoff sensitivity decreases with experienced regret.

Original languageAmerican English
Pages (from-to)305-322
Number of pages18
JournalJournal of Behavioral Decision Making
Volume20
Issue number3
DOIs
StatePublished - Jul 2007
Externally publishedYes

Keywords

  • Decisions from experience
  • Fictitious play
  • Independence of irrelevant alternatives
  • Momentum trading
  • Reinforcement learning
  • The reversed certainty effect

Fingerprint

Dive into the research topics of 'Replicated alternatives and the role of confusion, chasing, and regret in decisions from experience'. Together they form a unique fingerprint.

Cite this