Optimal allocation of time in risky choices under opportunity costs.

Abstract

In economic decision-making there is a trade-off between deliberation time to make a good decision and opportunity costs of other rewarding activities. Recent theories describe how the optimal strategy of evidence accumulation for this problem depends on the environment. If the utility difference between two options is known a priori, but not the identity of the better option, decision-makers should accumulate evidence according to a drift diffusion model with constant decision boundaries. If this difference is unknown beforehand, collapsing boundaries should be used. The exact position of the boundaries depends on the opportunity costs. In two experiments, we examined whether people can adaptively adjust their decision bounds. Participants rated and chose between risky lotteries, while we varied prior information about the utility difference. We also varied opportunity costs, by imposing time limits on task blocks. We found that participants used collapsing boundaries in all examined conditions, even in those where constant boundaries would have been optimal. This means they reduced their target strength of evidence during the choice process, even when they should not. In contrast, participants were sensitive to opportunity costs, deciding faster when choice time was more costly. In sum, people adapted to opportunity costs but not to prior information about utility differences.