Reliance on small samples and the value of taxing reckless behaviors

Ofir Yakobi, Doron Cohen, Eitan Naveh and Ido Erev

Judgment and Decision Making, 2020, vol. 15, issue 2, 266-281

Abstract: New technology can be used to enhance safety by imposing costs, or taxes, on certain reckless behaviors. The current paper presents two pre-registered experiments that clarify the impact of taxation of this type on decisions from experience between three alternatives. Experiment 1 focuses on an environment in which safe choices maximize expected returns and examines the impact of taxing the more attractive of two risky options. The results reveal a U-shaped effect of taxation: some taxation improves safety, but too much taxation impairs safety. Experiment 2 shows a clear negative effect of high taxation even when the taxation eliminates the expected benefit from risk-taking. Comparison of alternative models suggests that taxing reckless behaviors backfires when it significantly increases the proportion of experiences in which a more dangerous behavior leads to better outcomes than the taxed behavior. Qualitative hypotheses derived from naïve sampling models assuming small samples were only partially supported by the data.

Date: 2020
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