How outcome dependencies affect decisions under risk.

Many economic theories of decision making assume that people evaluate options independently of other available options. However, recent cognitive theories such as decision field theory suggest that people’s evaluations rely on a relative comparison of the options’ potential consequences such that the subjective value of an option critically depends on the context in which it is presented. To test this prediction, we examined pairwise choices between monetary gambles and varied the degree to which the gambles’ outcomes covaried with one another. When people evaluate options by comparing their outcomes, a high covariance between these outcomes should make a decision easier, as suggested by decision field theory. In line with this prediction, the observed choice proportions in 2 experiments (N = 39 and 24, respectively) depended on the magnitude of the covariance. We call this effect the covariance effect. Our findings are in line with the theoretic predictions and show that the discriminability ratio in decision field theory can reflect the choice difficulty. These results confirm that interdependent evaluations of options play an important role in human decision making under risk and show that covariance is an important aspect of the choice context.