Do Losses Matter? The Effect of Information-Search Technologies on Risky Choices

Luigi Mittone and Mauro Papi

Papers from arXiv.org

Abstract: Despite its importance, relatively little attention has been devoted to studying the effects of exposing individuals to digital choice interfaces. In two pre-registered lottery-choice experiments, we administer three information-search technologies that are based on well-known heuristics: in the ABS (alternative-based search) treatment, subjects explore outcomes and corresponding probabilities within lotteries; in the CBS (characteristic-based search) treatment, subjects explore outcomes and corresponding probabilities across lotteries; in the Baseline treatment, subjects view outcomes and corresponding probabilities all at once. We find that (i) when lottery outcomes comprise gains and losses (experiment 1), exposing subjects to the CBS technology systematically makes them choose safer lotteries, compared to the subjects that are exposed to the other technologies, and (ii) when lottery outcomes comprise gains only (experiment 2), the above results are reversed: exposing subjects to the CBS technology systematically makes them choose riskier lotteries. By combining the information-search and choice analysis, we offer an interpretation of our results that is based on prospect theory, whereby the information-search technology subjects are exposed to contributes to determine the level of attention that the lottery attributes receive, which in turn has an effect on the reference point.

Date: 2023-09
New Economics Papers: this item is included in nep-cbe, nep-dcm, nep-exp and nep-upt
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