Efficiency Bias in Expected Value Assessment

H. Lauren Min, Leeds School of Business, University of Colorado, Boulder
Bart de Langhe, Leeds School of Business, University of Colorado, Boulder
Stefano Puntoni , Rotterdam School of Management, Erasmus University Rotterdam
Decision-makers often fail to maximize expected value. Although this is typically attributed to psychological reactions to outcomes (e.g., loss aversion) and uncertainty (e.g., probability weighting), we trace this to people’s misunderstanding of the notion of expected value. In three studies we find people conflate expected value with efficiency (gain/loss ratio).
[ to cite ]:
H. Lauren Min, Bart de Langhe, and Stefano Puntoni (2014) ,"Efficiency Bias in Expected Value Assessment", in NA - Advances in Consumer Research Volume 42, eds. June Cotte and Stacy Wood, Duluth, MN : Association for Consumer Research, Pages: 800-800.