Linguistic-Numeric Presentation Mode Effects on Risky Option Preferences

Abstract

In this study, we examine preferences between lotteries with chances presented either numerically or linguistically. Presentation mode is predicted to affect preferences due to the perception of linguistic chance as skewed distributions of risk. Based upon weighting functions incorporating risk/uncertainty aversion from ambiguity theory and cumulative prospect theory, we predict that presentation mode effects on risky choices will be detectable in very small risks and in large risks. In two experiments, subjects chose between both gain and loss lotteries with constant payoffs and equivalent numeric and linguistic chances. Presentation mode affected choices when chances were above 50%, where lotteries with numeric chances were more frequently preferred in gains while lotteries with linguistic chances were more often preferred in losses. The effect of presentation mode for low-chance lotteries (5% and less) also affected choices such that numeric choices were generally preferred more frequently in losses and linguistically expressed choices were generally preferred more often in gains. Overall, these results suggest that theories of the effects of second order uncertainty on risky choice may be used to model decisions involving linguistic risk. They also suggest that the study of the perception of linguistic risk assessments can provide insight into the cognitive processing behind the weighting functions proposed to depict decision under risk and uncertainty. Finally, the results have practical implications since information providers can affect decision makers' choices by controlling presentation mode in such a way as to alter the relative attractiveness of uncertain events.