Autonomy and Behavioral Risk Preferences

Carnegie Mellon University, Pittsburgh PA

Investigators

Abstract

Many situations require confronting risky situations: for example, personal choices about retirement, investment in risky portfolios, business decisions about selling new products with uncertain customer demand, or foreign policy strategies with unclear international consequences. This project tests the idea that decision makers are more accepting of risk when they perceive that they have control over the level of risk they experience. The role of autonomy may explain why decision makers choose a small likelihood of a large outcome over a small certain alternative even though the small certain outcome is more motivating than the uncertain amount as a reward for performing an effortful task. The research findings have implications for understanding when decision makers are most willing to take on risk and for how best to incentivize performance tasks. Decisions under risk are ubiquitous in everyday life. In some risky situations decision makers have autonomy over the risk level they experience while in others decision makers respond to an assigned risk present in the environment. This research project tests the hypothesis that autonomy increases risk tolerance such that decision makers will exhibit more risk-seeking preferences when they can choose an option than when they respond to an assigned risk. One set of studies tests the prediction that autonomy, or even just the perception of control, increases risk tolerance. That is, decision makers are predicted to have a stronger preference for risky alternatives if they perceive that they have control over the risk level they experience, even when the objective risk level is held constant between decision makers who do and do not have autonomy. A second set of studies applies the effects of autonomy to why decision makers tend to choose low probability lotteries over matched certain outcomes whereas similar lotteries do not serve as effective incentives for effort tasks relative to certain incentives. The researchers compare risk preferences revealed in choice tasks to those revealed in effort tasks with real incentives, they seek to isolate the task features responsible for the difference in risk preference, and they test whether differences in perceived autonomy can explain why decision makers will choose risky options but not work for them. Ten laboratory experiments and two field studies test the predictions. This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.