Probability Weighting and Cognitive Ability

Syngjoo Choi, Jeongbin Kim (), Eungik Lee () and Jungmin Lee ()
Additional contact information
Jeongbin Kim: National University of Singapore, Marketing, Singapore 119260, Singapore
Eungik Lee: Department of Economics, New York University, New York, New York 10012
Jungmin Lee: Department of Economics, Seoul National University, Gwanak-gu, Seoul 08826, Korea (the Republic of)

Management Science, 2022, vol. 68, issue 7, 5201-5215

Abstract: Probability weighting is a major concept for accommodating systematic departures from expected utility theory. We examine the relation between probability weighting and cognitive ability with two experiments: one recruiting subjects with a large variation in cognitive ability and the other using the within-subject manipulation of time constraints in lottery choices and cognitive tests. We find a significant association between likelihood insensitivity—the cognitive component of probability weighting—and cognitive limitation such that subjects with a lower cognitive score or more interrupted cognition due to time pressure respond less discriminately to intermediate probabilities and more over-sensitively to extreme probabilities. Our findings shed light on the sources of anomalous choices against expected utility theory.

Keywords: probability weighting; cognitive ability; likelihood insensitivity; time pressure (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (6)

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http://dx.doi.org/10.1287/mnsc.2021.4146 (application/pdf)

Related works:
Working Paper: Probability Weighting and Cognitive Ability (2018)
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