Whether deciding between different ice-cream flavours to eat, deciding between different careers to pursue, or deciding between different potential life partners to marry, we all make several small and large choices in our daily lives. Many of these choices require choosing between risky and safe alternatives. For example, while choosing between two ice-cream flavours to eat, one might risk a new flavour or stick to the known flavour that one often eats and remembers the taste. In addition, making choices might require one to confront alternatives either descriptively or as a personal experience. For example, a person might read a matrimonial advertisement of two potential life partners (descriptive) while deciding which one of the two to marry, or one might make the same choice after experiencing an interaction with both (experiential). Sometimes, the knowledge of description might precede the actual experience. The main mystery still left to uncover is how we might make choices between risky and safe alternatives from written descriptions or after personal experience. What is the mechanics of making these simple and complex choices?

In classical research, these simple and complex choice decisions have been modelled as a binary choice between safe and risky alternatives. A safe alternative is most likely to generate constant and intermediate rewards upon its selection; whereas, a risky alternative is likely to generate both high and low rewards with a probability distribution determining their occurrence. In description, both risky and safe alternatives are specified as a written description stating the rewards and their probabilities of occurrence; whereas, in experience, risky and safe alternatives could be specified as two unlabelled buttons on a computer screen, where clicking a button simply reveals the rewards according to their assigned probabilities.

Recent research by Dr Ralph Hertwig and colleagues at University of Basel, Switzerland, has shed some light on the mechanics of choosing between these safe and risky binary choices presented as a description or as a personal experience. These researchers found that while making binary-choice decisions from written descriptions, we tend to overweigh the chances of risky rewards when the probability of occurrence is low, whereas, at the same time, we tend to under weigh the chances of those risky rewards if the probability of occurrence is high. Further, these researchers have also shown that this pattern of over and under weighing gets reversed for choices made from

experience.

This pattern of choice seems to be simple, yet it has relevance for a large number of decisions in the real world. For example, these observations mean that people would tend to overweigh the small chance of a future global warming catastrophe that is communicated through descriptive sources like newspapers and other media reports. Thus, upon reading such reports, people should become concerned about the global warming problem and decide to choose safe alternatives that alleviate this problem (like paying carbon-taxes in the status quo). But in the real world, people seem to care little about global warming.

These observations seem to counter reasoning based on descriptions as well. But when evaluated closely, they reveal less of a contradiction. That is because the experience of a future global warming catastrophe in the real world is hard to find for common people and based on one’s personal experiences about these events, one is likely to underestimate the chances and care less about global warming in the status quo. In fact, when people are faced with many descriptions and experiences about problems such as global warming at the same time, they tend to rely more on their experience than the descriptions. This could explain the lack of support for the global warming problem.

Besides global warming, the mechanics of choice also seem to apply to some recent events. One such example is the global risk perceptions due to the nuclear leak in Japan. Iodine pills were recommended to inhibit ingestion of radioactive iodine. As was reported in media, there was a shortage of iodine pills in the UK, while there was a surplus in Japan. This trend could also be attributed to the mechanics of choices. In the UK, in the absence of direct personal experience, people overweighed the descriptions of low probability radiation poisoning, whereas, in Japan, due to direct experiences of low probability poisoning people under weighed the risks.

Our risk perceptions of the world around us are shaped not only by the probability of occurrence of rewards but also how we get to know about them, descriptively or experientially. Thus, understanding the impact of probabilities as well as how they are communicated will help people escape the mechanics of choice.

(The writer is a faculty member of Carnegie Mellon University, US, and knowledge editor of Financial Chronicle)