Incentives Affect the Process of Risky Choice

Abstract

We investigated the effect of large changes in financial incentives on the process of decision-making by measuring autonomic arousal and visual attention during an incentivized lottery-choice task. High real stakes were accompanied by increased risk aversion and physiological arousal, and by shifts in attention toward safer alternatives. These effects were manifested both within and between individuals. We find no evidence that heightened risk aversion is a mistake. To capture the interactions of arousal and attention with subjective value during evidence accumulation, we developed and fit a new arousal-modulated Attentional Drift Diffusion model (aADDM). Our computational model demonstrates that arousal amplifies discounting of high-valued outcomes (multiplicative gaze bias) when participants attended to low-valued outcomes. Arousal and attention, and their interaction, are integral to the process of decision-making under risk.

Keywords: Risky choice, Neuroeconomics, Choice process, Attention, Emotion, Physiological Arousal

JEL Classification: D81, D87, G41, D91