Replicated alternatives and the role of confusion, chasing, and regret in decisions from experience
Article first published online: 2 JAN 2007
Copyright © 2006 John Wiley & Sons, Ltd.
Journal of Behavioral Decision Making
Volume 20, Issue 3, pages 305–322, July 2007
How to Cite
Ert, E. and Erev, I. (2007), Replicated alternatives and the role of confusion, chasing, and regret in decisions from experience. J. Behav. Decis. Making, 20: 305–322. doi: 10.1002/bdm.556
- Issue published online: 29 JUN 2007
- Article first published online: 2 JAN 2007
- reinforcement learning;
- fictitious play;
- momentum trading;
- the reversed certainty effect;
- independence of irrelevant alternatives;
- decisions from experience
The current paper explores choice among alternatives that can be classified into distinct classes. All the members of a particular class were ‘replicated alternatives’: they promised the same payoff distribution. Information to decision makers was limited to feedback concerning the realized (obtained and foregone) payoffs. Experiment 1 demonstrates that increasing the number of replicated alternatives creates confusion (which facilitates random choice) and changes the implications of the tendency to chase recent returns (i.e., select the alternative with the best recent outcomes). This effect, termed ‘confused chasing,’ facilitates risk seeking even when this behavior impairs expected earnings. Experiment 2 reveals that increasing the number of replicated alternatives can reduce (but does not eliminate) the tendency to underweight rare events. Experiment 3 shows that the relative importance of chasing and confusion is sensitive to the likelihood of realizing lower payoffs than the forgone payoffs. The main results are summarized with a simple model assuming that payoff sensitivity decreases with experienced regret. Copyright © 2006 John Wiley & Sons, Ltd.