Information Asymmetry in Decision from Description Versus Decision from Experience

Judgment and Decision Making, 4(4), 317-325, 2009

Posted: 27 Oct 2015

See all articles by Liat Hadar

Liat Hadar

Interdisciplinary Center (IDC) Herzliyah - Adelson School of Entrepreneuship

Craig R. Fox

University of California, Los Angeles (UCLA) - Anderson School of Management

Date Written: June 1, 2009

Abstract

In this paper we investigate the claim that decisions from experience (in which the features of lotteries are learned through a sampling process) differ from decisions from description (in which features of lotteries are explicitly described). We find that the experience-description gap is not as robust as has been previously assumed. We argue that when this gap appears it is driven to a large extent by asymmetries in information concerning which events are possible and which are certain. First, we find that, when experience-based decision makers sample events without error and then are told what outcomes are associated with each possible event, they are risk seeking for low-probability gains and risk averse for high-probability gains, as in description-based decision making. Second, we find that the experience-description gap for low-probability outcomes appears when rare outcomes are never experienced but disappears when: 1) all distinct outcomes are experienced at least once or 2) never-experienced outcomes are described as possibilities. Third, we find that the experience-description gap for high-probability outcomes is pronounced when decision makers previously experience lotteries that both offered the possibility of a zero outcome (which presumably makes them doubt that an always-experienced outcome is certain), but disappears when they have not previously experienced such lotteries.

Keywords: decision from experience, experience-description gap, uncertainty, risk, information asymmetry

JEL Classification: D01

Suggested Citation

Hadar, Liat and Fox, Craig R., Information Asymmetry in Decision from Description Versus Decision from Experience (June 1, 2009). Judgment and Decision Making, 4(4), 317-325, 2009, Available at SSRN: https://ssrn.com/abstract=2680145

Liat Hadar (Contact Author)

Interdisciplinary Center (IDC) Herzliyah - Adelson School of Entrepreneuship ( email )

P.O. Box 167
Herzliya, 46150
Israel

Craig R. Fox

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

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