in Teaching

Columbia’s Ideas At Work

In a valiant attempt to connect research and industry, Columbia University Business School launches a new site called Columbia Ideas At Work. The first issue focuses on entrepreneurship.

Here’s one interesting research brief from the site:

People take more risks when they judge from experience rather than from other sources of information.

Ralph Hertwig, Greg Barron, Elke Weber and Ido Erev studied how people make decisions of two kinds: when they do or don’t have information that describes the risks involved. When they do have such information, it’s a decision from “description.” When they don’t, it’s a decision from “experience.”

The study asked 100 students at a technical university to make six decisions. Half got a description of the risks, and the other half did not. For each decision, before making your final choice you could try out different answers to see what result each gave. Then you moved on to the next decision. So both groups were able to learn from experience, but only one had description too.

The results showed that the pure experience group made dramatically riskier choices than the description group and the description group made more accurate choices; the experience group underweighted the risks. Also, the experience group did not do more sampling beforehand to compensate for the lack of description; sampling came out about the same for both groups.