Decision-Making in Rats is Sensitive to Rare and Extreme Events: the Black Swan Avoidance

Most studies assessing decision-making under uncertainty use events with probabilities that are above 10-20 %. Here, to study decision-making in radical uncertainty conditions, Degoulet, Willem, Baunez, Luchini and Pintus provide a novel experimental design that aims at measuring the extent to which rats are sensitive - and how they respond - to extremely rare (below 1% of probability) but extreme events in a four-armed bandit task. Gains (sugar pellets) and losses (time-out punishments) are such that large - but rare - values materialize or not depending on the option chosen. The results show that all rats diversify their choices across options. However, most rats exhibit sensitivity to rare and extreme events despite their sparse occurrence, by combining more often options with extreme gains (Jackpots) and/or avoidance of extreme losses (Black Swans). In general, most rats choices feature one-sided sensitivity in favor of trying more often to avoid extreme losses than to seek extreme gains - that is, they feature Black Swan Avoidance.

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Experiments on Decisions under Uncertainty: A Theoretical Framework

The American Economic Review ◽

10.1257/aer.20120978 ◽

2016 ◽

Vol 106 (7) ◽

pp. 1775-1801 ◽

Cited By ~ 15

Author(s):

Eran Shmaya ◽

Leeat Yariv

Keyword(s):

Decision Making ◽

Experimental Design ◽

Theoretical Framework ◽

Decision Making Under Uncertainty ◽

Experimental Protocol ◽

Decisions Under Uncertainty ◽

Underlying Theory

The analysis of lab data entails a joint test of the underlying theory and of subjects' conjectures regarding the experimental design itself, how subjects frame the experiment. We provide a theoretical framework for analyzing such conjectures. We use experiments of decision making under uncertainty as a case study. Absent restrictions on subjects' framing of the experiment, we show that any behavior is consistent with standard updating (“anything goes”), including those suggestive of anomalies such as overconfidence, excess belief stickiness, etc. When the experimental protocol restricts subjects' conjectures (plausibly, by generating information during the experiment), standard updating has nontrivial testable implications. (JEL C91, D11, D81, D83)

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Fires, floods and financial meltdowns: black swan events and property asset management

Property Management ◽

10.1108/pm-08-2013-0042 ◽

2014 ◽

Vol 32 (3) ◽

pp. 241-255 ◽

Cited By ~ 2

Author(s):

David M. Higgins

Keyword(s):

Decision Making ◽

Extreme Events ◽

Asset Management ◽

Decision Making Process ◽

Black Swan ◽

Management Tools ◽

Content Type ◽

Starting Point ◽

Known Unknowns ◽

Asset Managers

Purpose – In these ever challenging times, conventional property decision theory appears inadequate to deal with black swan events: those unforseen, rare and extreme natural and man-made disasters. The paper aims to discuss these issues. Design/methodology/approach – This research maps, characterises and assesses these threats into: Known Knowns, Known Unknowns and Unknown Unknowns categories. Whereas, Known Knowns events can be managed and Unknown Unknowns events are difficult to even identify, those black swan Known Unknowns events that impact on a location, can be modelled based on available past and comparable evidence. Findings – As a starting point, black swan management tools can utilise available prediction-based scale indices to highlight the possibility of these extreme events occurring in locations, and so form an important consideration for property asset managers in their decision-making process. Originality/value – For property asset managers, this black swan management research attempts to identify, record and include those outlier events that directly impact on their property decision-making process. This can be undertaken by providing predictions as to the future occurrence of Known Unknown black swan events. These extreme events need to form an important part of a property asset manager's decision-making process. If overlooked, black swan events can have disastrous consequences for the valued client – building owner.

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