Risky Decisions in a Lottery Task Are Associated with an Increase of Cocaine Use

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Risk-aversion is a preference for a sure outcome over a gamble with higher or equal expected value. Conversely, the rejection of a sure thing in favor of a gamble of lower or binary lottery payoffs do they control risk aversion expected value is known as risk-seeking behavior.

The psychophysics of chance induce overweighting of sure things and of improbable events, relative to events of moderate probability. Most theoretical analyses of risky choices depict each option as a gamble that can yield various outcomes with different probabilities.

Expected Utility Theory EUT poses a utility calculation linearly combining weights and values of the probabilities associated with various outcomes. A large majority of people prefer the sure thing over the gamble, although the gamble has higher mathematical expected value also known as expectation.

The expected value of a monetary gamble is a weighted average, in which each possible outcome is weighted by its probability of occurrence. The expected value of the gamble in this example is. Research suggests that people do not evaluate prospects by the expected value of their monetary outcomes, but rather by the expected value of the subjective value of these outcomes see also Expected utility.

While EUT has dominated the analysis of decision-making under risk and has generally been accepted as a normative model of rational choice binary lottery payoffs do they control risk aversion us how we should make decisionsdescriptive models of how people actually behave deviate significantly from this normative model.

Prospect Theory PT claims that fair gambles gambles in which the expected value of the current option and all other alternatives are held equal are unattractive on the gain side but attractive on the loss side.

In contrast to EUT, PT is posited as an alternative theory of choice, in which value is assigned to gains and losses rather than to final assets total wealthand in which probabilities are replaced by decision weights. Defined on gains and losses rather binary lottery payoffs do they control risk aversion on total wealth. Concave in the domain of gains risk-aversion and convex in the domain of losses risk-seeking. Considerably steeper for losses than for gains see also loss aversion.

While risk-aversion is not part of PT per se, a pertinent part of PT is gain-loss asymmetry with regard to risk. One conceivable component of risk-aversion in the framework of PT is that the degree of risk-aversion apparent will vary depending on where along the binary lottery payoffs do they control risk aversion our decision lies.

PT captures this pattern of differentially weighting objective probabilities subjectively with an S-shaped binary lottery payoffs do they control risk aversion function. A framing effect occurs when transparently and objectively identical situations generate dramatically different decisions depending on whether the situations are presented or perceived as either potential losses or gains. Risky prospects are characterized by their possible outcomes and by the probabilities of these outcomes.

The following pair of problems attests to the power of framing effects in manipulating either risk-averse or risk-seeking behavior. The total number of respondents in each problem is denoted by N, and the percentage who chose each option is indicated in parentheses. Imagine that the U. Two alternative programs to combat the disease have been proposed. Assume that the exact scientific estimates of the consequences of the programs are as follows: If Program B is adopted, there is a one-third probability that people will be saved and a two-thirds probability that no people will be saved.

Which of the two programs would you favor? The formulation of Problem 1 implicitly adopts as a reference point a state of affairs in which the disease is allowed to take its toll of lives.

The outcomes of the programs include the reference state and two possible gains, measured by the number of lives saved. As expected, preferences are risk averse: Now consider another problem in which the same cover story is followed by a different description of the prospects associated with the two programs:.

If Program D is adopted, there is a one-third probability that nobody will die and a two-thirds probability that people will die. It is easy to verify that options C and D in Problem 2 are indistinguishable in real terms from options A and B in Problem 1, respectively. The second version, however, assumes a reference state in which no one dies of the disease. The best outcome is the maintenance of this state and the alternatives are losses measured by the number of people that will die of the disease.

People who evaluate options in these terms are expected to show a risk-seeking preference for the gamble option D over the sure loss of lives.

If preferences reverse based on inconsequential aspects of how the problem is framed, people cannot possibly binary lottery payoffs do they control risk aversion maximizing expected utility.

This may be based on a rephrasing of the outcomes that conveys no differential information about the treatments and that changes nothing about the outcomes themselves.

While risk-aversion is commonly explained through EUT and PT, observed risk-aversion behavior remains solely an artifact of these two theories, and extends beyond the bounds of what each theory can explain. EUT and PT predict that people should not purchase insurance for small-stakes risks, yet such forms of insurance e. By paying a premium often higher than the cost of replacement for the possibility that insurance may come in handy, people display direct risk-aversion by valuing a risky prospect below the value of its worst possible outcome replacement at face-value.

Suppose you are undecided whether or not to purchase earthquake insurance because the premium is quite high. As you hesitate, your friendly insurance agent comes forth with an alternative offer: This is a good deal because for half the price you are covered for more than half the days. Why do binary lottery payoffs do they control risk aversion people find such probabilistic insurance distinctly unattractive?

Reducing the risk by half, then, is not worth half the premium. The aversion to probabilistic insurance is significant for three reasons. First, it undermines the classical explanation of insurance in terms of a concave utility function. Both EUT and PT are probability-outcome independent theories, as they posit separate functions for the evaluation of outcomes and probabilities.

Intwo researchers from the University of Chicago, Rottenstreich and Hsee, conducted a series of three experiments to illustrate probability-outcome dependence, using an affective approach. Participants then had to indicate how much money they would have to be offered for them to be indifferent between receiving that dollar amount for sure and having the specified chance of winning the prize.

Affect-rich outcomes yield more pronounced overweighting of small probabilities, but more pronounced underweighting of large probabilities. The outcomes studies in Experiments 1 and 2 were gains above the status quo. When a positive outcome is available, any departure from impossibility may engender hope affect-rich and positiveand any deviation from certainty may produce fear affect-rich but negative. The following study demonstrates that the opposite pattern is also true: They were then asked to indicate how much money they would have to pay for them to be indifferent between paying that amount for sure and participating in the hypothetical experiment.

Both Experiments 1 and 2 investigated outcomes that were gains over the status quo. Experiment 3 studied negative outcomes and also found evidence of a weighting function that is more S-shaped for affect-rich that affect-poor prizes.

Therefore, probability-outcome dependence based on the affect-rich psychology of risk applies in the domains of both gains and losses. Do you remember the worst thing that has happened to you? What about the best? At what frequency are you able to recall memories that are negative in comparison to those that binary lottery payoffs do they control risk aversion positive? Does it seem like negative information is remembered with more ease and clarity than positive information?

Why is it easier to know the percentage of fatal car accidents each year, as opposed to the percentage of accidents without fatalities?

The human brain demonstrates a partiality for the processing of negative information. In comparison with their positive counterparts, negative stimuli receive a larger allocation of attention and a swifter response once recognized by the brain. Researchers binary lottery payoffs do they control risk aversion this particular ERP to the ventrolateral occipital cortex.

Given that a greater amount of attention is allotted to the processing of negative stimuli, the negativity bias may also be indicative of an attentional bias. The negativity bias is noticeable in a plethora of situations related to the formation of risk-averse behaviour. Notably, any stimuli that evokes the expression of fear encourages risk-aversion. The human brain has adapted to easily parse out these stimuli from a sea of benign stimuli.

Decision making and emotion, intertwined, cannot be separated from each other, as emotion can either benefit or hinder the attainment of maximized utility. Three different emotional states influence decision making: Your current emotional state i.

How do you feel while you are making a decision? Your past emotional state i. How did you feel anticipating your decision? Your future emotional state i. How will your decision affect how you feel in the future; What effect will the decision have on your emotional well-being? Researching decision-making and affect, Antoine Bechara, Antonio Damasio and colleagues ; discovered that damage to a brain area associated with emotional processing impairs effective decision-making.

In creating this task, Damasio wondered whether decision-making was afflicted because emotion was a necessary component to making effective decisions. In the task, participants continuously draw from one out of four possible decks — participants may switch decks at any point during the study. Participants are unaware that 2 of the decks correspond to net winnings — low payoffs and even lower losses. The other 2 decks correspond to net losses — high payoffs and even higher losses.

Researchers instruct participants to maximize their utility — gain the most money by the end of the task. In order to complete this task successfully, participants must discern that the decks associated with net winning, yet low payoffs, maximize their utility.

Damasio noticed that participants with damage to their orbitofrontal cortex were unable to realize that the deck associated with low payoffs yielded higher reward. Other researchers suggest that the difficulty encountered by patients with orbitofrontal cortex damage on Iowa Gambling Task is because the task requires participants to change their initial perception of potential gains and losses. Thus, orbitofrontal cortex damage inhibits the adaptation to changing patterns of rewards and punishment.

This conclusion has been replicated in primates, where orbitofrontal damage prevented the extinction of a learned association. Damasio posited that emotional information in the form of physiological arousal, is needed to inform decision making. When confronted with a decision, we may react emotionally to the situation, a reaction binary lottery payoffs do they control risk aversion manifests as changes in physiological arousal in the body, or somatic markers. Given data collected from the Iowa Gambling Task, Damasio postulated that the orbitofrontal cortex assists individuals in forming an association between somatic markers and the situations that trigger them.

Once recognized, the orbitofrontal cortex can determine an adequate and swift behavioural response, and its likeliness for reward. Several brain areas are observed in the expression of risk-averse behaviour. The previously mentioned orbitofrontal cortex is amongst these brain areas, supporting the feeling of regret. Regret, an emotion which heavily influences decision making, leads individuals to make decisions which circumvent encountering this emotion in the future.

Studying brain activity associated with regret, researcher Georgio Coricelli and his colleagues triggered feelings of regret in healthy participants, by having them complete a gambling task in which they were informed that the best choice was the unchosen option.

After repeated trials, researchers began to observe risk averse behaviour by binary lottery payoffs do they control risk aversion participants, a behaviour echoed in intensified activity within the medial orbitofrontal cortex and the amygdala.

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