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Related Experiment Videos

Linguistic-Numeric Presentation Mode Effects on Risky Option Preferences

Dusenbury1, Fennema

  • 1Florida State University

Organizational Behavior and Human Decision Processes
|November 1, 1996
PubMed
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Organizational behavior and human decision processes·1996
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How chances are presented affects financial decisions. Numeric chances are often preferred for gains, while linguistic chances are preferred for losses, especially with high or low probabilities.

Area of Science:

  • Decision Science
  • Behavioral Economics
  • Cognitive Psychology

Background:

  • Understanding how individuals make choices under risk is crucial in economics and psychology.
  • The way information is presented, particularly probabilities, can influence decision-making processes.
  • Existing theories like cumulative prospect theory and ambiguity theory provide frameworks for analyzing risk preferences.

Purpose of the Study:

  • To investigate how the presentation mode of chances (numeric vs. linguistic) affects preferences between lotteries.
  • To determine if presentation mode influences choices involving both gains and losses, particularly at extreme probabilities.
  • To explore the applicability of theories on second-order uncertainty and decision-making under risk to linguistic risk assessments.

Main Methods:

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  • Two experiments were conducted involving subjects choosing between lotteries with equivalent numeric and linguistic chances.
  • Lotteries included both gain and loss scenarios with constant payoffs.
  • Analysis focused on choices made with varying probabilities, including low chances (≤5%) and chances above 50%.

Main Results:

  • Presentation mode significantly affected choices, particularly for probabilities above 50%.
  • Numeric chances were preferred for gains, while linguistic chances were preferred for losses when probabilities exceeded 50%.
  • For low probabilities (≤5%), numeric chances were favored in losses, and linguistic chances in gains.

Conclusions:

  • Theories of second-order uncertainty can model decisions involving linguistic risk.
  • Perception of linguistic risk provides insights into cognitive processing of decision-making under risk and uncertainty.
  • Controlling the presentation mode of uncertain events offers practical implications for influencing decision-makers' choices.