Single-Play and Repeated-Play Decisions with Fungible and Non-Fungible Outcomes

Carnegie Mellon University, Pittsburgh PA

Investigators

Abstract

Something is fungible if one part or quantity may be replaced by another equal part or quantity in the satisfaction of an obligation. Oil, grain, and money are usually considered to be fungible. In the context of repeated monetary gambles, the money won in one gamble can replace the money lost in another, dollar for dollar. In other decision contexts, the outcomes of repeated trials may not be fungible. Consider, for example, a medical practice guideline that recommends surgery for a particular ailment. In one instance, successful surgery may extend the patient's life by some number of years. In another instance, unsuccessful surgery may result in the patient's immediate death. The life lost by the second patient cannot, in any real sense, be replaced by an equal quantity of life from the first patient. Perceived fungibility is important because it may affect how people make decisions. When considering decisions about monetary gambles, people often make different decisions when they can play the gamble many times instead of just once, because they realize that the money won in one gamble can replace the money lost in another. For example, many people would decline a gamble that provides a 50% chance of a $200 gain and a 50% chance of a $100 loss (a single-play decision), but would readily accept a series of 10 or 100 plays of the same gamble (a repeated-play decision). However, when outcomes are perceived to be non-fungible, as in the surgery example above, it is expected that people will not make different decisions when there are multiple patients instead of just one, because good outcomes do not really offset bad outcomes. The initial experiments in this project will assess the extent to which people perceive outcomes to be fungible in many different decision situations. In subsequent experiments, situations in which outcomes are perceived to be fungible or non-fungible will be used to determine how perceived fungibility affects single-play and repeated-play decisions. In addition to other contributions to the understanding of risky decision making, the planned research will help to establish limits on the appropriateness of aggregating outcomes across multiple decisions, with potentially broad implications for decision making in fields as diverse as marketing, research and development, medicine, law, land-use planning, and free-trade policy.