Frequent winners explain apparent skewness preferences in experience-based decisions

Area of Science:

• Decision-making science
• Behavioral economics
• Cognitive psychology

Background:

• Financial investors prefer right-skewed returns (frequent small gains, rare large losses).
• Experience-based decision-making experiments often show preferences for left-skewed outcomes.
• Existing models struggle to reconcile these conflicting observations.

Purpose of the Study:

• Investigate the effect of outcome distribution skewness on choices in experience-based decisions.
• Reconcile conflicting findings between financial markets and experimental decision-making.
• Identify the mechanisms driving preferences for skewed distributions.

Main Methods:

• Conducted seven studies manipulating outcome distributions and identifying the "frequent-winner effect."
• Used computational analyses with a reinforcement-learning model.
• Varied outcome distributions and experimental paradigms to test robustness.

Main Results:

• Apparent preference for left-skewed distributions stems from a "frequent-winner effect" where more frequent outcomes are favored.
• Choice tendencies can be manipulated by altering which option is the frequent winner, even with identical distributions.
• Evidence for an intrinsic preference for right-skewed distributions was also found.

Conclusions:

• The "frequent-winner effect" explains preferences in experience-based decisions, resolving discrepancies with financial market behavior.
• Decision-making theories must account for how joint outcome distributions influence choices.
• Understanding skewness preferences is crucial for accurate models of economic and financial decision-making.