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

TL;DR

This study investigates how different digital information-search interfaces influence risky decision-making, revealing that the way information is presented affects individuals' risk preferences differently depending on the context of gains and losses.

Contribution

It introduces a novel experimental approach comparing three information-search technologies and demonstrates their impact on risk choices through the lens of prospect theory.

Findings

CBS technology leads to safer choices with gains and losses.

CBS technology results in riskier choices with gains only.

Information-search methods influence attention to lottery attributes and reference points.

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.