behavioral model of trinary risky choice

model 1: risk attitude = probability distortion

we model subjective value of juice 𝐽, 𝑉! , as

" such that,

𝑉! = 𝜌! 𝑝! ! 𝑞!
𝜌! relative value of juice 𝐽 relative to
𝛾# < 1 → risk seeking, 𝛾# > 1 → risk averse a reference juice, 𝐾

𝛾# risk attitude (from probability distortion)

model 2: risk attitude = quantity distortion
𝛾$ risk attitude (from quantity distortion)
"
𝑉! = 𝜌! 𝑝! 𝑞! "

𝛾$ > 1 → risk seeking, 𝛾$ < 1 → risk averse

risk attitude = probability distortion
estimated coefficients 𝑎% = 𝜂 log 𝜌& derived parameters relative value
from the logistic: 𝑎' = 𝜂 log 𝜌( of the model: 𝑎% 𝑎'
𝜌& = exp , 𝜌( = exp
𝑎) = 𝜂𝛾 𝑎* 𝑎*
𝑎* =𝛾
risk attitude choice variability
𝑎)
𝛾# = , 𝜂$ = 𝑎*
𝑎*

risk attitude = quantity distortion

estimated coefficients 𝑎% = 𝜂 log 𝜌& derived parameters relative value
from the logistic: 𝑎' = 𝜂 log 𝜌( of the model: 𝑎% 𝑎'
𝜌& = exp , 𝜌( = exp
𝑎* =𝛾 𝑎) 𝑎)
𝑎* = 𝜂𝛾
risk attitude choice variability
𝑎*
𝛾$ = , 𝜂# = 𝑎)
𝑎)

by definition, 𝛾$ and 𝛾# should be the inversely related to each other

inconsistent results
we encountered inconsistencies when we
correlated 𝛾 with 𝜂:

𝑟 𝜂, 𝛾# the correlation coefficient produced

an anticorrelation between 𝜂 and 𝛾#

the animal becomes more risk-seeking

the larger the size of 𝜂

𝑟 𝜂, 𝛾$ also produced an anticorrelation

between 𝜂 and 𝛾$

the animal is less risk-seeking the larger

the size of 𝜂!
preliminary takeaway
the inconsistency may arise from an underlying relationship between 𝑎) (or 𝜂# ) and 𝑎* (or 𝜂$ )
that we have not accounted for

let us revisit the relationship between 𝑝! , 𝑞! , and chosen juice (see example session below).

observation: the plots appear to obey an indifference curve!

cobb-douglas trinary choice model
suppose we model 𝑉! in the Cobb-Douglas form:

such that,
𝑉! = 𝜌! 𝑝!'+, 𝑞!,
𝜌! relative value of juice 𝐽 relative to
a reference juice, 𝐾
if we account for choice stochasticity, 𝜂, then
𝛼 share of variance arising from
- - quantity, 𝑞
𝑉! = 𝜌! 𝑝!'+, 𝑞!,

1−𝛼 share of variance arising from

probability, 𝑝
the model assumes 𝑝 and 𝑞 are substitutes
tradeoff between precision in probability and quantity

𝜌 = 2.5, 𝛾 = 0.6
parameter derivations
relationship between choice 𝜂# = 𝜂 1 − 𝛼 → share of choice variability arising from 𝑝
variability of 𝑝 and 𝑞
𝜂$ = 𝜂𝛼 → share of choice variability arising from 𝑞

𝜂 = 𝜂# + 𝜂$ → total choice variability

-!
𝜆=- → marginal rate of precision substitution
"

estimated coefficients from 𝑎% = 𝜂 log 𝜌& , 𝑎) = 𝜂#

the logistic 𝑎' = 𝜂 log 𝜌( , 𝑎* = 𝜂$

derived parameters of the 𝜂# = 𝑎) , 𝜂$ = 𝑎* , 𝜂 = 𝑎) + 𝑎*

model:
𝑎% 𝑎'
𝜌& = exp , 𝜌( = exp , 𝜌. = 1
𝑎) + 𝑎* 𝑎) + 𝑎*
/# /$ /$
𝛼= , 1−𝛼 = , 𝜆=
/$0/# /$0/# /#
resolving the inconsistency
notes
precision (a) the precision parameters 𝜂# (probability) and 𝜂$ (quantity) are positively correlated,
but the propensity for 𝜂$ to be more precise is larger than 𝜂# (flat slope with 𝜂$ on the
x-axis)

(b) in other words, the marginal gain in precision for probability is less than the marginal
gain of precision for quantity

(c) this suggests that as the animal becomes more precise in representing 𝑞, the animal
will also be more precise in representing 𝑝, but to a lesser extent than 𝑞

share of variance -"

(d) since 𝛾 = , then we expect a positive correlation between 𝜂$ and 𝛾 and away
-" 0-!
'
from 𝛾 ∗ = (where the animal equally ‘allocates’ precision for 𝑞 and 𝑝)
)

-!
(e) conversely, given 1 − 𝛾 = , we expect a positive correlation between 𝜂# and 1 −
-" 0-!
'
𝛾 and towards 𝛾 ∗ =
)

(f) the attributes 𝑞 and 𝑝 ‘compete’ for the allocation in precision

revisiting the preliminary findings
/$ -!
𝛾# = = represents the constant of the marginal
/# -"
rate of substitution (MRS).

/# -"
𝛾$ = = is simply the inverse.
/$ -!

the correlation between 𝛾# and 𝜂$ suggests that

increasing 𝜂$ decreases the degree of
substitutability of adding more precision in 𝑝

furthermore, added precision in 𝑞 leads to a lower

likelihood for 𝜂$ = 𝜂#

conversely, the correlation between 𝛾$ and 𝜂#

suggests that increasing 𝜂# decreases the
substitutability of adding more precision in 𝑞

but adding more precision in 𝑝 draws in closer for

𝜂$ = 𝜂#
distortions in probability and quantity

1 1
𝜌& 𝜌(

risk-seeking

'
+
1 '+"
"
'
+'+"
𝜌&
1
"
concave
𝜌( utility
risk-averse
notes
probability distortion we define a probability threshold, 𝑝!∗ , such that if 𝑤 𝑝 ≥ 𝑝!∗ , then w 𝑝 = 1 for any 0 <
'+"
𝑝 < 1 (note 𝑤 𝑝 is the distorted probability, 𝑤 𝑝 = 𝜌! 𝑝! ).

crucially, the probability threshold is defined in terms of relative value,

1
𝑝!∗ =
𝜌!

implications

(a) since 𝜌& > 𝜌( > 𝜌. , then we should expect that 𝑝&∗ < 𝑝(∗ < 𝑝.∗ = 1. this suggests that
the animal will have a more biased probability distortion the larger the relative value

(b) relative value, 𝜌, determines the animal’s degree of risk-seeking behavior

(c) prediction: a positive correlation between 𝑝!∗ and 𝜂# : the higher the precision in
representing 𝑝, the closer 𝑝!∗ to 1.
distortions in probability and quantity

1 1
𝜌& 𝜌(

risk-seeking

'
+
1 '+"
"
'
+'+"
𝜌&
1
"
concave
𝜌( utility
risk-averse
notes
quantity distortion we define a crossover point, 𝑞!∗ , as a boundary such that 𝑞!∗ = 𝑞, and for any 𝑞 < 𝑞!∗ ,
the distorted quantity, 𝑣 𝑞 is overestimated and 𝑞 > 𝑞!∗ , 𝑣 𝑞 is underestimated.

crucially, the probability threshold is defined in terms of relative value and share of
variance:
'
+'+"
1
𝑞!∗ = "
𝜌!
implications

(a) the concavity of the utility function is driven by choice variability. in other words, the
noisier the representation of 𝑞, the more concave the utility function becomes

(b) the higher the relative value, the more likely that the animal will over-estimate 𝑞

(c) by construction, 𝜌& > 𝜌( > 𝜌. , then there is more 𝑣 𝑞& that is overestimated than
𝑣 𝑞( and 𝑣 𝑞. , and 𝑣 𝑞( is more likely to be more overestimated than 𝑣 𝑞.

(d) prediction: a negative correlation between 𝑞!∗ and 𝜂# and a positive correlation
between 𝑞!∗ and 𝛾
subjective value distortion

given the identity line: 𝑉! = 𝐸𝑄! (expected value, 𝐸𝑄! = 𝑝! 𝑞! ).

> pq
(a) 𝑉& has a value larger than 𝐸𝑄& all throughout

(b) 𝑉( has values to the left of the identity line (larger than 𝐸𝑄( ,
and some values to the right (lower than 𝐸𝑄( )

(c) nearly all of 𝑉. is located to the right of identity, suggesting

an underestimation of subjective value
= pq
< pq
subjective value and chosen juice
deriving the MRS

MRS
do the share of relative values converge as precision
increases?
proportion of relative value 𝜌& 𝜌& 1
% 𝜌& = , % 𝜌( = , % 𝜌. =
𝜌& + 𝜌( + 1 𝜌& + 𝜌( + 1 𝜌& + 𝜌( + 1

% 𝜌& + % 𝜌( + % 𝜌2 = 1

reminder:

𝑎% 𝑎'
𝜌& = exp , 𝜌( = exp , 𝜌. = 1
𝑎) + 𝑎* 𝑎) + 𝑎*

as precision (for probability) increases, the more the animal can compute
expected value, the more likely the proportions will converge to 1/3.
distortions on p and q when parameters are accounted for
inconsistent results
model 1 does not support the theory: increasing
precision leads to more risk-seeking behavior
on the other hand, model 2 supports the theory:
increasing precision leads to less risk-seeking.
however, 𝛾# and 𝛾$ are parameters that mirror each
other, so we should expect consistent correlations
with 𝜂.
unpacking the definitions…
the anticorrelation between 𝛾# and 𝜂$ arises from our
definition of ‘risk attitude’:
𝑎)
𝛾# =
𝑎*
since 𝑎* is in the denominator of 𝛾# and 𝜂$ = 𝑎* , we
expect an anti-correlation between 𝛾# and 𝜂$ .

however, this is not the case! by the same argument, this also follows between 𝛾$
and 𝜂# :
𝑎*
𝛾$ =
𝑎)

given that 𝜂# = 𝑎) , we also expect an anti-correlation!

noisy cognitive representations in economic choice

behavioral biases arise from noisy cognitive representations. noise may arise from stimulus encoding to
higher-order cognitive processing of behavioral representations, e.g., risk attitudes, temporal discounting

the current form of the theory assumes that:

(a) the decision maker (DM) is maximizing expected utility

(b) noise (or stimulus variability) reduces the degree to which the DM can precisely represent utility

(c) the by-product of noise and imprecise utility representation is behavioral bias
noisy cognitive representations in economic choice

the theory posits that increasing the precision in the way the decision-maker represents behavior
decreases the bias

risk aversion or risk-seeking behavior is a behavioral bias that has been observed in humans and animals
alike

hence, increasing the precision in the way the DM represents utility should increase the likelihood of the
DM to behave in a risk-neutral manner
behavioral model of trinary risky choice
we assume a Luce choice rule: the choice rule can be converted into a logistic:
- -
𝑉& 𝑉&
Pr 𝐴 = , 𝐽 = 𝐴, 𝐵, 𝐶 Pr 𝐴 =
∑! 𝑉!- - -
𝑉& + 𝑉( + 𝑉.
-

- -
𝑉( 𝑉& 1 1
Pr 𝐵 = = - - - - I -
∑! 𝑉!- 𝑉& + 𝑉( + 𝑉. 𝑉& 𝑉&

𝑉.
- 1
Pr 𝐶 = = - -
∑! 𝑉!- 𝑉 𝑉
1+ ( + .
𝑉& 𝑉&

the procedure also applies to Pr 𝐵 and Pr 𝐶

behavioral model of trinary risky choice
&
for completeness, the choice probabilities - 345 6%
given that𝑉! =𝑒 , the choice probabilities are
are
equivalently expressed as:
1
Pr 𝐴 = - -
1
𝑉( 𝑉. Pr 𝐴 = 6 6'
1+ + +- 345 6' +- 345
𝑉& 𝑉& 1+ 𝑒 ( +𝑒 6)

1 1
Pr 𝐵 = - - Pr 𝐵 = 6 6
𝑉 𝑉 +- 345 6( +- 345 6(
1+ & + . 1+ 𝑒 ' + 𝑒 )
𝑉( 𝑉(
1
1 Pr 𝐶 =
Pr 𝐶 = - - +- 345
6)
+- 345
6)
𝑉& 𝑉( 1+𝑒 6' +𝑒 6(
1+ +
𝑉. 𝑉.
model 1: risk attitude = probability distortion
"
if model 𝑉! as 𝑉! = 𝜌! 𝑝! ! 𝑞! and 𝜌. = 1,

then we can derive the parameters (𝜌& , 𝜌( , 𝛾# , 𝜂) using the coefficients estimated from the logistic:

1
Pr 𝐴 = " "
𝜌! 𝑝!! 𝑞! 𝜌! 𝑝!! 𝑞!
1 + exp −𝜂 log "! + exp −𝜂 log "!
𝜌# 𝑝# 𝑞# 𝜌$ 𝑝$ 𝑞$

1
= 𝑝! 𝑞 𝑝! 𝑞
1 + exp −𝜂 log 𝜌! − log 𝜌# + 𝛾% log + log ! + exp −𝜂 log 𝜌! − log 𝜌$ + 𝛾% log + log !
𝑝# 𝑞# 𝑝$ 𝑞$
model 2: risk attitude = quantity distortion
"
if model 𝑉! as 𝑉! = 𝜌! 𝑝! 𝑞! " and 𝜌. = 1,

then the parameters (𝜌& , 𝜌( , 𝛾$ , 𝜂) are derived from the coefficients estimated from the logistic:

1
Pr 𝐴 = " "
𝜌! 𝑝! 𝑞!" 𝜌! 𝑝! 𝑞!"
1 + exp −𝜂 log "! "! + exp −𝜂 log ""
𝜌# 𝑝# 𝑞# 𝜌$ 𝑝$ 𝑞$

1
= 𝑝! 𝑞 𝑝! 𝑞
1 + exp −𝜂 log 𝜌! − log 𝜌# + log + 𝛾& log ! + exp −𝜂 log 𝜌! − log 𝜌$ + log + 𝛾& log !
𝑝# 𝑞# 𝑝$ 𝑞$
logistic regression
for models 1 and 2, we jointly estimate the coefficients of the logistic regression (𝑎7+' , 𝑘 = 1, . . , 4), and
derive the parameters of our behavioral model

1
Pr 𝐴 = 𝑝! 𝑞 𝑝! 𝑞
1 + exp − 𝑎' − 𝑎( + 𝑎) log + 𝑎* log ! + exp − 𝑎' + 𝑎) log + 𝑎* log !
𝑝# 𝑞# 𝑝$ 𝑞$

1
Pr 𝐵 = 𝑝# 𝑞 𝑝# 𝑞
1 + exp − 𝑎( − 𝑎' + 𝑎) log + 𝑎* log # + exp − 𝑎( + 𝑎) log + 𝑎* log #
𝑝! 𝑞! 𝑝$ 𝑞$

1
Pr 𝐶 = 𝑝$ 𝑞 𝑝$ 𝑞
1 + exp − −𝑎( + 𝑎) log + 𝑎* log $ + exp − −𝑎' + 𝑎) log + 𝑎* log $
𝑝! 𝑞! 𝑝# 𝑞#