Do People Make Decisions Under Risk Based on Ignorance? An Empirical Test of the Priority Heuristic Against Cumulative Prospect Theory

41 Pages Posted: 4 Mar 2008 Last revised: 10 Mar 2008

See all articles by Andreas Glöckner

Andreas Glöckner

Max Planck Institute for Research on Collective Goods; University of Cologne

Tilmann Betsch

University of Erfurt

Date Written: February 2008

Abstract

Brandstätter, Gigerenzer and Hertwig (2006) put forward the priority heuristic (PH) as a fast and frugal heuristic for decisions under risk. According to the PH, individuals do not make trade-offs between gains and probabilities, as proposed by expected utility models such as cumulative prospect theory (CPT), but use information in a non-compensatory manner and ignore information. We conducted three studies to test the PH empirically by analyzing individual choice patterns, decision times and information search parameters in diagnostic decision tasks. Results on all three dependent variables conflict with the predictions of the PH and can be better explained by the CPT. The predictive accuracy of the PH was high for decision tasks in which the predic-tions align with the predictions of the CPT but very low for decision tasks in which this was not the case. The findings indicate that earlier results supporting the PH might have been caused by the selection of decision tasks that were not diagnostic for the PH as compared to CPT.

Keywords: Decision Strategy, Fast and Frugal Heuristics, Bounded Rationality, Decision Latency, Process Tracing, Cumulative Prospect Theory

Suggested Citation

Glöckner, Andreas and Betsch, Tilmann, Do People Make Decisions Under Risk Based on Ignorance? An Empirical Test of the Priority Heuristic Against Cumulative Prospect Theory (February 2008). MPI Collective Goods Preprint, No. 2008/5. Available at SSRN: https://ssrn.com/abstract=1101442 or http://dx.doi.org/10.2139/ssrn.1101442

Andreas Glöckner (Contact Author)

Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

HOME PAGE: http://www.coll.mpg.de/team/page/andreas_gloeckner

University of Cologne ( email )

Richard-Strauss-Str. 2
Köln, 50931
Germany

HOME PAGE: http://soccco.uni-koeln.de/andreas-gloeckner.html

Tilmann Betsch

University of Erfurt ( email )

Internationales Buro
Nordhaeuser Str. 63
D - 99089 Erfurt
Germany

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