Subjective perception of "described" uncertainty
In the study, when decision makers chose based on descriptions of probability distributions, they tended to feel an increase in the probability of a somewhat likely loss (50% chance of losing €1000) less strongly than the same increase in the probability of a very unlikely loss (5% risk of losing €1000 euros) or an almost certain loss (95% risk of losing €1000). This behavior is also observed for gains. In the language of prospect theory, this means that decision makers facing uncertainty overestimate small probabilities and underestimate moderate and high probabilities. The study of Abdellaoui and his co-authors confirms this result.
How the information is communicated influences people’s perceptions.
Small samples and short memory
On the one hand, in an uncertain context, policy makers tend to trust conclusions based on very small samples: they need few examples to form an opinion. In addition, decision makers tend to draw lessons from more recent situations. For example, after a natural disaster, the inhabitants of the devastated region are often inclined to get insurance. But a significant portion of those who sign up in the immediate aftermath of the disaster will terminate their contract a few years later.
Presentation of the information
Finally, how the information is communicated influences people’s perceptions. A dull description using figures presented in terms of probabilities does not have the same impact on behavior as information gained through experience. Road safety campaigns focused on communicating accident rates have little success, whereas signs indicating that fatalities have occurred at that particular location have greater impact. Besides the fact that statistics have little capacity to provoke uncertainty, they are sometimes misunderstood and misused, even by the most sophisticated decision makers. In an uncertain context, these factors contribute to incoherent decisions that may have costly negative, economic consequences.
