Jobtalk Mbgarcia Wustl

Department of Economics
The perceptual and psychophysical

foundations of decisions under uncertainty
Miguel Barretto Garcia

Zurich Center for Neuroeconomics
University of Zurich
Washington University at St. Louis

8 April 2022
Decisions are stochastic
>
EUM
Mosteller & Nogee (1951)

Decisions are biased
t+1
…
t+n
Preference Reversals
(e.g., Tversky and Thaler, 1990)
Decisions are biased
t+1
…
t+n
Heuristic Decisions
(e.g., Gigerezner, 2008)
Preference Reversals
(e.g., Tversky and Thaler, 1990)
This Talk In A Nutshell:

Perceptual processes are crucial to our understanding observed
stochastic choice behaviour and choice biases in economic choice
Perceptual and Psychophysical Perspective
dlPFC
Parietal
ACC
Hippocampus
> vmPFC Visual
Choice Process
Deciding Processing Encoding

Conflict Storing
Executive
Which between the two

clusters contain more dots?
Capacity Constraints
1. Limited time
2. Size perception
3. Background contrasts
Which between the two

clusters contain more dots?
Bias and noisiness in representation is a direct consequence

of the brain’s capacity constraints
Contrast Effect and processing in V2

Risk aversion as perceptual bias:

Humans don’t (seem to) like uncertainty
Ambiguity aversion as range-dependent:

People don’t like missing information

Risk Aversion
Expected Utility Maximization
§ Concave mapping from monetary amounts to utility
>
representations,
§ “Undervaluation” of utilities at larger payoffs, i.e.

“diminishing marginal utility of wealth”
Risk Aversion
>
representations,

Mosteller & Nogee (1951) Issues

§ Random utility models (RUM) assume noise, but not
where noise comes from (Webb, 2018)
§ Persistence of risk aversion in small-stakes gambles,

i.e. Rabin’s calibration paradox (Rabin, 2000; Rabin &
Thaler, 2001)
Risk Aversion
>
representations,

Mosteller & Nogee (1951) Issues

§ Random utility models (RUM) assume noise, but not
where noise comes from (Webb, 2018)
§ Persistence of risk aversion in small-stakes gambles,

i.e. Rabin’s calibration paradox (Rabin, 2000; Rabin &
Thaler, 2001)
Rabin & Thaler (2001)

Dominant Account
Risk Aversion undervaluation of utilities due to concavity
Observed Undervaluation
>
Perceptual Account
Risk Aversion underestimation of magnitudes
due to cognitive limitations
Observed Underestimation
>
Perceptual Noisy & Logarithmic

Account representation of magnitude
Humans Monkeys
(Dehaene, 1998)
(Nieder & Marten, 2007)
Noisy & logarithmic representation of magnitude
(Harvey et al., 2013; Harvey & Dumoulin, 2017)

Regressive bias
Recent work from perceptual decision-making
links precision of mental representation directly
to inherent biases that reflect prior beliefs (e.g.,
small magnitudes occur more often)
(Petzschner et al., 2016)

Regressive bias
Recent work from perceptual decision-making
links precision of mental representation directly
to inherent biases that reflect prior beliefs (e.g.,
small magnitudes occur more often)
(Petzschner et al., 2016)

Can this regressive bias account for risk aversion?
(Piazza et al., 2004)
> (Mosteller & Nogee, 1951)

Khaw, Li, & Woodford (2020)

Concave mapping from
magnitude to perceived magnitude
Monetary payoffs during risky choice is

encoded logarithmically and noisily


Key Predictions
1. Consistency (variability) of risky decisions
depends on the logarithmic ratio of the
payoffs
2. Precision of payoff representation is

inversely related to the degree of risk
aversion


Key Predictions
payoffs

aversion


Key Predictions
probability, f(𝛽 !" )

Risk-neutral
payoffs

aversion
Precision (1⁄𝜈)
Questions
1. Do decision makers employ similar magnitude representations for risky

decisions and perceptual decisions? How well does this mechanism generalize
across different choice domains and stimulus contexts?
2. Can we employ neural data to quantify the precision of these representations

and predict risky decision making in a fully independent context?
The Experiment
To directly relate individual differences (n = 64) in precision of magnitude representations
during numerosity estimation and apparent risk aversion during risk choice
The Experiment
Numerosity Task
(fMRI; 216 trials)
The Experiment
Gambling Task
(Behavior; 480 trials)
Numerosity Task
(fMRI; 216 trials)
Symbolic Numbers
Coin Clouds
1. Are the same noisy logarithmic representations used in all three

choice domains?

choice domains? Numerosity
Consistency of choice is a
logarithmic ratio of the
payoffs

choice domains? Numerosity Risk
payoffs

payoffs

payoffs
Evidence that a general

mechanism is at play
Page 35
2. Can we predict risk aversion in the risky choice task by

the performance in the perceptual numerosity task?
Non-symbolic Symbolic
3. Can we predict risk aversion in the risky choice task, using the
precision of neural representations in the perceptual numerosity task?
Step 2: Decode numerical posterior from unseen data – P(s|d)
(van Bergen et al., 2015)

17/06/2020
Summary 1
§ We provide empirical evidence that small-stakes risk aversion might (at
least partly) result from a perceptual process, rather than (only) a valuation
process
§ We show that individual differences in risk aversion can be predicted by

both behavior and neural data in a purely numerosity decision-making task
§ These results provide evidence that risk aversion is linked to the precision
of mental/neural magnitude representations that are used for choices in
different domains and contexts

Ambiguity aversion as range-dependent:

People don’t like missing information
Ambiguity aversion as range-dependent

Humans will rely on whatever available information
A AMBIGUITYA AMBIGUITY Attention Reference NoiseRefe
Attention
#C
100 #
100C
+ #C #
+
' '
50% %
? ?
" "
" " &
50% ( (
− #$ − #
Decision
#0$ 0$ Decision
# ./0 1 234 567 8 /0./0
9234 /67
1 234: 567 8
+, = +;<=
, = ;<
EUM and standard cognitive choice models

Assume a utility / value function for each of the gambles
Attention
#C
100 #
100C
+ #C #
+
' '
50% %
? ?
" "
" " &
50% ( (
− #$ − #
Decision
#0$ 0$ Decision
# ./0 1 234 567 8 /0./0
9234 /67
1 234: 567 8
+, = +;<=
, = ;<

Attention
#C
100 #
100C
+ #C #
+
' '
50% %
𝑈(𝑅𝑖𝑠𝑘)
? ?
" "
" " &
50% ( (
− #$ − #
Decision
#0$ 0$ Decision
# ./0 1 234 567 8 /0./0
9234 /67
1 234: 567 8
+, = +;<=
, = ;<

Attention
#C
100 #
100C
+ #C #
+
' '
50% %
𝑈(𝐴𝑚𝑏) 𝑈(𝑅𝑖𝑠𝑘)
? ?
" "
" " &
50% ( (
− #$ − #
Decision
#0$ 0$ Decision
# ./0 1 234 567 8 /0./0
9234 /67
1 234: 567 8
+, = +;<=
, = ;<
Second-order probabilities
Camerer and Weber (1992)

Lessons from Psychophysics and Attention

§ DMs directly attend to and compare stimulus features
§ Possible gains and losses

§ They are not computing higher-order probabilities instantaneously
Lessons from Psychophysics and Attention

§ DMs directly attend to and compare stimulus features
§ Possible gains and losses

§ They are not computing higher-order probabilities instantaneously
§ DMs perception of magnitudes are noisy and (log)-compressed
§ Range sensitivity: the wider the range between values, the less
sensitive the DM is to deciding
§ Magnitude sensitivity: the larger the overall value, the less sensitive
the DM in deciding
Basic Building Blocks – Ambiguity

1. DM evaluates the possible gains, g, and losses, l, w.r.t. a reference
A AMBIGUITY Attentio
Possible Losses 𝑙 = 𝑠 − 𝑣& #C +
'
Possible Gains 𝑔 = 𝑣' − 𝑠
?
"
"
(
−
Decision
#$ ./0 1 2
+, =

1.1 Attention: DM is biased in focusing their attention on winning more
with 𝑣' or losing by receiving only 𝑣&
Possible Losses 1−𝛽 𝑙 A AMBIGUITY Attentio
#C +
Possible Gains 𝛽𝑔 '
?
"
"
Attention Parameter (
𝛽 ∈ 0,1 −
Decision
#$ ./0 1 2
+, =

1.2 Comparison Distortion: DM evaluates G and L imperfectly or noisily
Possible Losses 1 − 𝛽 𝑙( A AMBIGUITY Attentio
𝛽𝑔(
#C +
Possible Gains
'
?
Attention Parameter "
𝛽 ∈ 0,1 "
(
Sensitivity Parameter −
𝛼 ∈ 0,1
Decision
#$ ./0 1 2
+, =

1.3 Gain-Loss Ratio: DM will deviate from S and consider choosing U by
weighing the relative gains and losses.
#C +
exp 1 − 𝛽 𝑙( '
𝑚) =
exp 𝛽𝑔(
?
"
"
(
−
Decision
#$ ./0 1 2
+, =

2. Bias: DM has a bias that is modulated by the payoff values
+, + -.,
𝑚* = 𝑣' 𝑣& A AMBIGUITY Attentio
(Cobb-Douglas form)
#C +
'
?
Attention Parameter "
𝛽 ∈ 0,1 "
(
−
Bias Parameter
Decision
< 0, biased towards 𝑆 #$ ./0 1 2
𝜃 = ) = 0, unbiased +, =
> 0, biased away from 𝑆

3. Normalization: DM’s overall perception of the comparison process is
constrained with normalization
Range Sensitivity #C +
𝑟 = 𝑣' − 𝑣& '
?
Magnitude Sensitivity "
𝑧 = 𝑣' + 𝑣&
"
(
−
Decision
#$ ./0 1 2
+, =

3.1 Compressed Normalization: DM’s perception of range and magnitude
is constrained via compression
𝑟 ln 𝑟
1
ln 𝑥 𝜂=
𝛿ln 𝑟 ln 𝑧
𝑧 ln 𝑧
Sensitivity Parameter
𝛿 ∈ 0,1

exp 1 − 𝛽 𝑙 (
Gain-Loss Ratio 𝑚) =
exp 𝛽𝑔(
Bias +, + -.,
𝑚* = 𝑣' 𝑣&
1
Compressed Normalization 𝜂=
𝛿 ln 𝑟 ln 𝑧
Next Step: Estimate the probability of choosing the safe gamble

Derivation
/
𝑚)
Pr 𝑆 > 𝐴 = / / Luce Form (Logit)
𝑚) + 𝑚*
Derivation
/
𝑚)
Pr 𝑆 > 𝐴 = / / Luce Form (Logit)
𝑚) + 𝑚*
Gain-Loss Ratio
.-
1 , -., exp 1 − 𝛽 𝑙(
= 1 + exp −𝜃 ln 𝑣' 𝑣& + ln
𝛿 ln 𝑟 ln 𝑧 exp 𝛽𝑔(
Compressed Bias
Normalization
1
Range Sensitivity Model Pr 𝑆 > 𝐴 =
1 + exp −𝑑
we simplify the equation as: Gain-Loss Ratio
$#
exp 1 − 𝛽 𝑠 − 𝑣#
𝑑 = 𝑎! + 𝛼" ln
exp 𝛽 𝑣% − 𝑠 $#
Distortion Parameter 𝛼' = 1 − 𝛿
Choice Consistency 1
𝛼" =
(Slope) 𝛿 ln 𝑟 ln 𝑧
𝜃 ln(𝑚& )
Bias (Intercept) 𝑎! = −
" ?
Basic Building Blocks – Risk #$

Decision
./
+, =
4. Odds: Probability is represented as odds
𝑝
B RISK Att
𝑝0 =
1−𝑝
“High” odds #C
A
1−𝑝
𝑝1 =
𝑝
“Low” odds "
1−A
#$ Decision
?
./0 >8 1
+< =
" ?
Basic Building Blocks – Risk #$

Decision
./
+, =
4.1 Distorted Odds: Odds are imperfectly encoded
B RISK Att
#C
𝑝 2
2 “High” odds
𝑝0 =
1−𝑝
A
2
2 1−𝑝
𝑝1 =
𝑝
“Low” odds "
1−A
Odds Distortion Parameter
#$
< 1, 𝑢𝑛𝑑𝑒𝑟𝑒𝑠𝑡𝑖𝑚𝑎𝑡𝑒 𝑜𝑑𝑑𝑠 Decision
𝛾 = ) = 1, 𝑛𝑜 𝑑𝑖𝑠𝑡𝑜𝑟𝑡𝑖𝑜𝑛 ?
> 1, 𝑜𝑣𝑒𝑟𝑒𝑠𝑡𝑖𝑚𝑎𝑡𝑒 𝑜𝑑𝑑𝑠 ./0 >8 1
+< =
Basic Building Blocks – Risk

Distorted odds enters as an “attentional weight” that shifts our attention
towards high and low payoffs
2
exp 1 − 𝛽 𝑝1 𝑙 (
Gain-Loss Ratio 𝑚) = 2
exp 𝛽𝑝0 𝑔(
" "
+,4 + -., 4#
Bias 𝑚3 = 𝑣' ! 𝑣&
1
Range Sensitivity Model Pr 𝑆 > 𝑅 =
1 + exp −𝑑
we simplify the equation as: Gain-Loss Ratio
) $#
exp 1 − 𝛽 𝑝( 𝑠 − 𝑣#
𝑑 = 𝑎! + 𝛼" ln ) $#
exp 𝛽𝑝* 𝑣% − 𝑠
Distortion Parameter 𝛼' = 1 − 𝛿
Choice Consistency 1
𝛼" =
(Slope) 𝛿 ln 𝑟 ln 𝑧
𝜃 ln(𝑚+ )
Bias (Intercept) 𝑎! = −
Parameter and Model Recoveries

Parameter and Model Recoveries

Predictions: Parameters
Ambiguity / Risk
The higher the noise, 𝛿,
the less sensitive or more random the behaviour
Ambiguity / Risk
Ambiguity / Risk
The larger the bias, 𝜃,
the more it shifts the DM to choose S
Ambiguity / Risk
Ambiguity / Risk
The larger the bias, 𝜃,
the more it shifts the DM to choose S
Ambiguity / Risk
The larger the 𝛽 (attention towards 𝑣' ),
the more it shifts the DM towards A or R
Risk
The larger the 𝛾,
the more sensitive the DM in choosing
between S and R
%
?
"
" &
(
− #$
Decision
#$
Experiment 1 +, =
./0 1 234 567 8 /0 9234 /67 :
;<=
A AMBIGUITY B Attention
RISKReference Noise Attention Reference Noise
C
#C #
#C + #C
+ A
' A '
% %
?
"
" " &
"
&
1−A
( (
− #$
− #$ 1−A
#$
Decision
#$ Decision
./0 1 234 567 8 /0 9234 /67 : ? 234 ? 234
+, = ./0 >8 1 567 8 /0 >: 9 /67
;<= +< =
;<=
§ varied R (9 levels)
B andRISK
Z (low and high) Attention Reference Noise
C
# # + C
§ fixed expected values to match
A
ambiguity and risky trialsA
'
%
" "
&
1−A
(
− #$ 1−A
$ Decision
Predictions: Range
Ambiguity
1 The less sensitive the slope, 𝛼- ,

𝛼" =
𝛿 ln 𝑟 ln 𝑧 as range increases
Predictions: Range
Ambiguity

𝛼" =
S
𝜃 ln(𝑚& ) The lower the bias for s, 𝛼5 ,
𝑎! = −
𝛿 ln 𝑟 ln 𝑧 the larger the shift towards A
A
Predictions: Range
Ambiguity

𝛼" =
Pr(S > A)
S
𝑎! = −
S - EV
A
Predictions: Range
Ambiguity

𝛼" =
Pr(S > A)
S
𝑎! = −
S - EV
A
DM will choose S on average the wider the range

Predictions: Range
Risk

𝛼" =
Predictions: Range
Risk

𝛼" =
𝛿 ln 𝑟 ln 𝑧 as range increases 𝑝
1−𝑝
First Half S
% %
,-.$ , "/- .&
𝜃 ln 𝑚+ 𝜃 ln 𝑣% 𝑣#
𝑎! = − =
𝛿 ln 𝑟 ln 𝑧 𝛿 ln 𝑟 ln 𝑧 R
R
Pr(S > A) S - EV
Predictions: Range
Risk

𝛼" =
𝛿 ln 𝑟 ln 𝑧 as range increases 𝑝
1−𝑝
First Half
% %
,-. , "/- .&
𝜃 ln 𝑚+ 𝜃 ln 𝑣% $ 𝑣#
𝑎! = − =
𝛿 ln 𝑟 ln 𝑧 𝛿 ln 𝑟 ln 𝑧 R
Pr(S > A)
S
Second Half % %
,-. , "/- .&
𝜃 ln 𝑚+ 𝜃 ln 𝑣% $ 𝑣#
𝑎! = − =
𝛿 ln 𝑟 ln 𝑧 𝛿 ln 𝑟 ln 𝑧
R S - EV
Results
RSM can differentially fit across different conditions of ambiguous and risky trials
Results
The data is consistent with the model’s prediction that choosing the ambiguous gamble
depends on the range
Interim Summary
§ We provide evidence that our range sensitivity model (RSM) can predict
behavior in both risky and ambiguous decisions
§ Ambiguity aversion appears to be an epiphenomenon of decision makers

relying on available range information
?
"
" &
(
− #$
Department of Economics Decision
#$ ./0 1 234 567 8 /0 9234 /67 :
+, =
Experiment 2: Ellsberg-type choice ;<=
A B
AMBIGUITY RISK Attention Reference Noise
Attention Reference Noise
#C #C #C + #C
+ A
A ' '
% %
?"
" "
" & &
1−A
(
(
− #$
− #$ 1−A
Decision
#$ #$ Decision
./0 1 234 567 8 /0 9234 /67 :
+, = >8
./0 ;<=
? 234
1 567 8 /0 >:
? 234
9 /67 :
+< =
;<=
B RISK Attention Reference Noise

§ matched the expected value Cfor both ambiguity and risk
# + #C
A
A
§ varied the range (15 levels) '
%
" EV, 6 levels)
§ overall magnitude (or
"
&
1−A
(
− #$ 1−A
#$ Decision
8 ? 234 8 : ? 234 :
Experiment 2: Ellsberg-type choice

Prediction:
𝛽
§ The only relevant information that varies is odds information

𝑝
§ 𝜸: DM will behave according to the odds 1−𝑝
R
Experiment 2: Ellsberg-type choice

Prediction:
𝛽
§ The only relevant information that varies is odds information

A
§ 𝜸: DM will behave according to the odds 𝜃 ln(𝑚+& )
𝑎! = −
𝛿 ln 𝑟+& ln 𝑧+&
§ 𝜽: Magnitude will bias the DM to be indifferent,
or choose R or A R
(shifts toward choosing R)
Results
§ Behaviour varies according to the odds
§ Magnitude modulates the bias whether the DM R or A

Model Comparison
Our model (RSM) performed better versus classical preference-based / cognitive
models
Experiment 1 Experiment 2
Model Comparison
models
Experiment 3 Experiment 4
Model Comparison
models
Different Payoff
Low Payoff is Zero
Presentation
Gain/Loss Frame Varying Probabilities Mixed Gambles

Summary
§ We provide evidence that our range sensitivity model (RSM) can predict
behaviour in Ellsberg-type decisions
§ Ambiguity aversion appears to be an epiphenomenon of decision makers

relying on available probability and magnitude information (i.e., source
uncertainty)
§ RSM not only predicts behaviour, but appears to be a relatively superior

model as opposed to classical preference-based / cognitive models
Future Directions
§ To further test and refine these psychophysical models to neural data
Future Directions
§ To further unpack more perceptual / psychophysical processes and how

that can explain further economic choice biases
§ Intertemporal choice
§ Preference reversals
§ Information biases
Future Directions
§ To further unpack more perceptual / psychophysical processes and how

that can explain further economic choice biases
§ Intertemporal choice
§ Preference reversals
§ Information biases
§ Efficient coding: To relate perceptual processes to memory and

attentional systems in the brain
§ Micro-foundations of choice: To develop neurobiologically-founded

computational models of decision making and test its assumptions to
electrophysiological data
Thanks to The Team
Gilles de Hollander Marcus Grueschow Marius Moisa Sebastian Weissengruber

(UZH) (UZH) (UZH)
Rafael Polanía Michael Woodford Christian Ruff

(ETH Zurich) (Columbia) (UZH)
Thanks to the ZNE

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Department of Economics

The perceptual and psychophysical

Miguel Barretto Garcia

Washington University at St. Louis

Decisions are stochastic

Mosteller & Nogee (1951)

Decisions are biased

Decisions are biased

This Talk In A Nutshell:

Perceptual and Psychophysical Perspective

Deciding Processing Encoding

Perceptual and Psychophysical Perspective

Which between the two

Perceptual and Psychophysical Perspective

Which between the two

Bias and noisiness in representation is a direct consequence

Contrast Effect and processing in V2

Risk aversion as perceptual bias:

Ambiguity aversion as range-dependent:

Risk aversion as perceptual bias:

§ “Undervaluation” of utilities at larger payoffs, i.e.

§ “Undervaluation” of utilities at larger payoffs, i.e.

Mosteller & Nogee (1951) Issues

§ Persistence of risk aversion in small-stakes gambles,

§ “Undervaluation” of utilities at larger payoffs, i.e.

Mosteller & Nogee (1951) Issues

§ Persistence of risk aversion in small-stakes gambles,

Rabin & Thaler (2001)

Perceptual Noisy & Logarithmic

Noisy & logarithmic representation of magnitude

(Harvey et al., 2013; Harvey & Dumoulin, 2017)

(Petzschner et al., 2016)

(Petzschner et al., 2016)

Can this regressive bias account for risk aversion?

(Piazza et al., 2004)

> (Mosteller & Nogee, 1951)

Khaw, Li, & Woodford (2020)

Monetary payoffs during risky choice is

Khaw, Li, & Woodford (2020)

Monetary payoffs during risky choice is

2. Precision of payoff representation is

Khaw, Li, & Woodford (2020)

Monetary payoffs during risky choice is

2. Precision of payoff representation is

Khaw, Li, & Woodford (2020)

Monetary payoffs during risky choice is

probability, f(𝛽 !" )

2. Precision of payoff representation is

1. Do decision makers employ similar magnitude representations for risky

2. Can we employ neural data to quantify the precision of these representations

1. Are the same noisy logarithmic representations used in all three

1. Are the same noisy logarithmic representations used in all three

1. Are the same noisy logarithmic representations used in all three

1. Are the same noisy logarithmic representations used in all three

1. Are the same noisy logarithmic representations used in all three

Evidence that a general

2. Can we predict risk aversion in the risky choice task by

(van Bergen et al., 2015)

§ We show that individual differences in risk aversion can be predicted by

Risk aversion as perceptual bias:

Ambiguity aversion as range-dependent:

Ambiguity aversion as range-dependent

EUM and standard cognitive choice models