Proceedings of the Annual Meeting of the Cognitive Science Society

We investigate how people allocate a limited set of resourcesbetween multiple risky prospects. We found that only a smallpercentage of decisions followed some form of naive diversifi-cation or mean-variance optimization. In general, people wereless mean-variance optimal than a naive 1/N heuristic. As-pects of choice sets, such as domain, skew, and second orderstochastic dominance, affected resource allocation decisions ina similar manner to their influence on single choice gambles.Individual traits traditionally linked to risk propensity seem tomanifest in terms of the degree to which people are inclinedto diversify. Lower risk aversion and higher risk seeking traitsare linked to increasing diversification. Risk congruency, thedegree to which peoples’ self-reported and elicited risk aver-sion matches, moderates how susceptible people are to costframing nudges. We find evidence for heterogeneous clusterswhere people either under-weight or over-weight segregatedcosts, leading to the same nudge producing opposite behav-ioral results within two risk incongruent groups.