UC Berkeley

People often must decide whether to invest scarce resources—such as time, money, or energy—to improve the chances of a positive outcome. For example, a doctor might decide whether to utilize scarce medicine to improve a patient’s chances of recovery, or a student might decide whether to study a few additional hours to increase their chances of passing an important exam. Eleven studies demonstrate that people behave as if they focus on the relative reduction in bad outcomes caused by such improvements. As a consequence, the same improvements (e.g., ten percentage point improvements) are valued very differently depending on whether one’s initial chances of realizing a good outcome are high or low. This focus on the relative reduction of bad outcomes drives risk preferences that violate normative standards (Studies 1a-2), is amplified when decisions become more consequential (Study 2b), and leads even experienced professionals to make suboptimal decisions (Study 3).