Consequential inconsistency in dynamic decision making

This project evaluates changes in risk-seeking behavior across multi-stage decision tasks. Decision-makers were presented with a two-stage decision tree. At each stage, participants chose between a sure reward or a risky gamble with equal expected value. Participants who chose the gamble option continued to the second decision stage, where they again chose between a sure reward or a gamble. Rational choice theories require that behavior at the second stage be consequentialist, meaning that choices should only depend on the possible future outcomes. According to this view, participants should display a consistent risk preference across all consequentially equivalent decision nodes. However, our findings indicate widespread violations of consequential consistency, with past events (i.e. the outcomes of earlier, but consequentially irrelevant chance events) significantly affecting participants’ willingness to gamble at the second decision stage. Specifically, participants made riskier choices after experiencing good outcome than they did after bad outcome. We examine two alternative explanations for observed inconsistencies: one based on changing subjective probabilities in line with the Gambler’s Fallacy, and another based on shifting reference points.