How context or flawed human rationality may influence our decisions

Sometimes, individuals mistakenly choose objectively worse options because of how these options are perceived in a given context. 

For instance, if an investor is presented with the opportunity to purchase a portfolio of shares with a 60% probability of yielding profit, they are likely to accept. However, if informed that there’s a 40% chance of the portfolio incurring losses, they will probably decline the offer. 

The context is what determines our evaluation of the available options. 

An international team of authors conducted a study involving volunteers across 11 countries of differing socio-economic and cultural makeup. 

Their research, titled ‘Comparing experience- and description-based economic preferences across 11 countries’ is published in the journal Nature Human Behaviour. The findings from this study may have practical application in economics, psychology, marketing, and other fields. 

During the first phase, participants were asked to choose between two options, each linked to either obtaining a reward or facing the risk of losing it. In each round, the options were reiterated, forming various combinations to establish contexts in which these options were perceived as either more or less rewarding.  

In certain contexts, all people made sub-optimal decisions 

Thus, participants had the opportunity to maximise their rewards based on learning from previous rounds; however, all participants without exception, irrespective of nationality, made sub-optimal decisions and incorrectly evaluated the options in certain contexts. 

The study authors then instructed participants to perform a second task involving a choice between two options presented in the same contexts, but with known variables. For instance, the participating volunteers were informed that they could either receive a substantial reward with a 50% probability, or opt for a guaranteed, but smaller, reward. 

By providing various options, it becomes possible to identify the threshold at which individuals cease taking risks and choose the safe option.  

This threshold is individual and depends on a person’s risk preference, which, as revealed, is a culture-specific characteristic. Thus, citizens of one country may exhibit average risk preferences, while others may be risk-averse or have an appetite for higher risk. 

“Previously, it was believed that the primary factor influencing our decisions was our willingness to take risks,” explains co-author of the study Oksana Zinchenko, Senior Research Fellow at the Institute for Cognitive Neuroscience, HSE University. 

“However, through our research, we discovered that this is not always the case. Our decision-making primarily depends on how we receive information: whether we experience the situation first-hand or are informed about it. 

“We have demonstrated that human consciousness exhibits a certain cognitive limitation, which is a shared characteristic not contingent on our beliefs, attitudes, or nationality.” 

You can find out more about the research here.