|M.Sc Student||Taly Ish-Shalom|
|Subject||On Humans, Rats and the Certainty Effect|
|Department||Department of Industrial Engineering and Management||Supervisor||Full Professor Erev Ido|
Previous experimental studies of the certainty effect (the observation that the attractiveness of safe prospects increases when they promise desirable outcomes with certainty) reveal a surprising difference between humans and rats. Macdonald et al. (1991) demonstrate that rats exhibit the certainty effect in experienced based decisions. Human decision makers exhibit the certainty effect when they make a single choice based on a description of the possible outcomes (see Allais, 1953; Kahneman & Tversky; 1979). However, in repeated choice tasks when the decision-makers have to rely on personal experience (like the rats in MacDonald et al.) human subjects exhibit the opposite tendency (Barron and Erev 2003). The current paper presents three studies that explore this pattern. The results reveal that this difference may not reflect a specie effect. Rather, the difference is a function of the different rewards administered in the two studies. In Barron and Erev the feedback was in the form of numerically presented payoffs, while in MacDonald et al. the feedback was in the form of water rewards. Our analysis suggests that the difference between the two paradigms can be a result of the reasonable assumption that the assessment of the magnitude of the reward is less accurate in the case of water. The certainty effect can emerge in human decisions based on experience. The direction of the certainty effect appears to be driven by the decision maker's ability to discriminate between the attractive outcomes associated with the two reward alternatives.