Decisions From Experience and the Effect of Rare Events in Risky Choices

When people have access to information sources such as newspaper weather forecasts, drug-package inserts, and mutual-fund brochures, all of which provide convenient descriptions of risky prospects, they can make decisions from description. When people must decide whether to back up their computer’s hard drive, cross a busy street, or go out on a date, however, they typically do not have any summary description of the possible outcomes or their likelihoods. For such decisions, people can call only on their own encounters with such prospects, making decisions from experience. Decisions from experience and decisions from description can lead to dramatically different choice behavior. In the case of decisions from description, people make choices as if they overweight the probability of rare events, as described by prospect theory. We found that in the case of decisions from experience, in contrast, people make choices as if they underweight the probability of rare events, and we explored the impact of two possible causes of this underweighting—reliance on relatively small samples of information and overweighting of recently sampled information. We conclude with a call for two different theories of risky choice. Why are doctors and patients often at odds with one other? Rushed office visits, poor interpersonal skills on the part of doctors, and intransigence on the part of patients may all contribute to disagreement and misunderstandings. Here we focus on another factor that can strain the relationship: Patients’ and doctors’ decisions are often based on information that, though equivalent in content, comes from different sources. Consider, for example, the decision whether to vaccinate a child against diphtheria, tetanus, and pertussis (DTaP). Parents who research the side effects of the DTaP vaccine on the National Immunization Program Web site will find that up to 1 child out of 1,000 will develop high fever and about 1 child out of 14,000 will experience seizures as a result of immunization. Although doctors have these same statistics at their disposal, they also have access to information not easily available to parents—namely, personal experience, gathered across many patients, that vaccination rarely results in side effects; few doctors have encountered one of the unusual cases in which high fever or seizures follow vaccination. If the importance assigned to rare events differs as a function of how one learns about their likelihood, then doctors and patients might well disagree about whether vaccination is advised. Does the impact of rare events on risky decisions depend on how knowledge about their likelihood was obtained? Before addressing this question—the focus of this article—we introduce the dominant decision-theoretic framework, according to which people evaluate possible outcomes of their decisions in terms of beliefs and values. EXPECTATIONS: FROM PROBABILITIES TO