The Description-Experience gap and the impact of money
Money makes the world go round, but it is not always easy to predict the direction of the spin. The current talk reviews research suggesting that an important part of the difficulty is the product of the description-experience gap (Hertwig & Erev, 2009): Classical decision research that focuses on decisions based on description of the incentive structure reveals oversensitivity to rare and extreme outcomes, but natural decisions that are made based on past experience reveal the opposite bias. In addition, the analysis of the impact of experience clarifies the conditions that trigger the coexistence of underinvestment in stock that suggests extreme risk aversion, and under-diversification that suggests risk seeking. Comparison of alternative models, using open choice prediction competitions, highlight the potential of the assumption that people tend to select the strategies that led to the best outcomes in a small set of similar situations in the past.