Reliance on small samples and the value of taxing reckless behaviors

Ofir Yakobi, Doron Cohen, Eitan Naveh, Ido Erev

Research output: Contribution to journalArticlepeer-review

Abstract

New technology can be used to enhance safety by imposing costs, or taxes, on certain reckless behaviors. The current paper presents two pre-registered experiments that clarify the impact of taxation of this type on decisions from experience between three alternatives. Experiment 1 focuses on an environment in which safe choices maximize expected returns and examines the impact of taxing the more attractive of two risky options. The results reveal a U-shaped effect of taxation: some taxation improves safety, but too much taxation impairs safety. Experiment 2 shows a clear negative effect of high taxation even when the taxation eliminates the expected benefit from risk-taking. Comparison of alternative models suggests that taxing reckless behaviors backfires when it significantly increases the proportion of experiences in which a more dangerous behavior leads to better outcomes than the taxed behavior. Qualitative hypotheses derived from naïve sampling models assuming small samples were only partially supported by the data.

Original languageEnglish
Pages (from-to)266-281
Number of pages16
JournalJudgment and Decision Making
Volume15
Issue number2
StatePublished - Mar 2020

Keywords

  • Negative effect of taxation
  • Reliance on small samples
  • Reversed payoff variability effect
  • Safety-enhancement

All Science Journal Classification (ASJC) codes

  • General Decision Sciences
  • Economics and Econometrics
  • Applied Psychology

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