UIUC Quant Brownbag

Risky choices underlie social, economic, and health problems with broad repercussions for individuals and society. Understanding who makes risky choices, when, and why is the province of theory. I discuss advances in theories of risky choice, contrasting predictions of expected utility theory, prospect theory, dual-systems approaches, and fuzzy-trace theory. Specifically, research shows (a) how mental representations of meaningful gist, as opposed to precise literal thinking, account for central phenomena in decision making, such as framing biases and the Allais paradox; (b) that these imprecise but meaningful gist representations are relied on increasingly with development; and (c) that gist explains risky choices despite numeracy, expertise, and cognitive reflection. Surprising implications of these individual and developmental differences for models of risky choice are developed.