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Compound risk judgment in tasks with both idiosyncratic and systematic risk: The “Robust Beauty” of additive probability integration
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Psychology. (Kognitionsgruppen)ORCID iD: 0000-0003-2451-6450
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Psychology.
2018 (English)In: Cognition, ISSN 0010-0277, E-ISSN 1873-7838, Vol. 171, p. 25-41Article in journal (Refereed) Published
Abstract [en]

In this study, we explore how people integrate risks of assets in a simulated financial market into a judgment of the conjunctive risk that all assets decrease in value, both when assets are independent and when there is a systematic risk present affecting all assets. Simulations indicate that while mental calculation according to naïve application of probability theory is best when the assets are independent, additive or exemplar-based algorithms perform better when systematic risk is high. Considering that people tend to intuitively approach compound probability tasks using additive heuristics, we expected the participants to find it easiest to master tasks with high systematic risk – the most complex tasks from the standpoint of probability theory – while they should shift to probability theory or exemplar memory with independence between the assets. The results from 3 experiments confirm that participants shift between strategies depending on the task, starting off with the default of additive integration. In contrast to results in similar multiple cue judgment tasks, there is little evidence for use of exemplar memory. The additive heuristics also appear to be surprisingly context-sensitive, with limited generalization across formally very similar tasks.

Place, publisher, year, edition, pages
2018. Vol. 171, p. 25-41
Keywords [en]
Multiple risk integration, Linear additive integration, Probability, Risk
National Category
Psychology (excluding Applied Psychology)
Research subject
Psychology
Identifiers
URN: urn:nbn:se:uu:diva-337841DOI: 10.1016/j.cognition.2017.10.023ISI: 000427208300004OAI: oai:DiVA.org:uu-337841DiVA, id: diva2:1170944
Funder
Swedish Research CouncilAvailable from: 2018-01-05 Created: 2018-01-05 Last updated: 2018-05-18Bibliographically approved

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Publisher's full texthttps://doi.org/10.1016/j.cognition.2017.10.023

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Juslin, Peter

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