Decisions: Risk and Reward

In recent years leading figures in a variety of fields - political, financial, medical, and organizational - have become acutely aware of the need to effectively incorporate aspects of risk into their decision-making. This book addresses a wide range of contemporary issues in decision research, such as how individuals deal with uncertainty and complexity, gender-based differences in decision-making, what determines decision performance and why people choose risky activities.The book presents results from academic research carried out over the last twenty years. A common theme is the study of decisions made in horserace betting markets, a research medium which offers a rich insight into decision-making in general and one which enjoys particular methodological advantages over laboratory-based simulations. This set of naturalistic studies explores the variety of individual motivations for betting, how people perceive and respond to the presence of uncertainty, the challenges of complex and turbulent information and the use of heuristics as a response, how decision-making performance is affected by structural or process-related features of the decision environment, and how men and women differ in their decision behaviour.The authors’ interesting and novel findings offer a richer understanding of the psychological and economic underpinnings of betting behaviour which should inform practitioners, policymakers and regulators in an industry which is undergoing unprecedented global growth. The book is also relevant to courses covering subject areas such as financial markets, decision-making and behavioural finance.

Johnnie Johnson is Director of the Centre for Risk Research at the University of Southampton.Alistair Bruce is Professor of Decision and Risk Analysis at Nottingham University Business School.

Section 1: Motivation for Betting and Risk Taking, 1. Toward an explanation of betting as a leisure pursuit, 2. Costing excitement in leisure betting, 3. Successful betting strategies: Evidence from the UK off-course betting market, Section 2: The Impact of Complexity on Decision-Making Behaviour, 4.The complex decision: insights from naturalistic research, 5. An empirical study of the impact of complexity on participation in horserace betting, 6. A probit model for estimating the effect of complexity on risk taking, 7. Risk strategy under task complexity: A multivariate analysis of behaviour in a naturalistic setting, 8. Decision making under risk: effect of complexity on performance, Section 3: Gender Differences in Decision-Making Behaviour, 9. Gender and DSS design: the research implications, 10. Male and female betting behaviour – new perspectives, 11. Gender-based differences in leisure behaviour: performance, risk-taking and confidence in off-course betting, 12. Decision-making, risk and gender: are managers different? Section 4: The Use of Information by Decision Makers and Deviations from Rational Economic Behaviour, 13. A violation of dominance and the consumption value of gambling, 14. Exploring decision makers’ use of price information in a speculative market, 15. Gluck’s Second Law: an empirical investigation of horserace betting in early and late races, 16. Investigating the roots of the favourite-longshot bias: An analysis of decision-making by supply and demand-side agents in parallel betting markets, 17. Market efficiency analysis requires a sensitivity to market characteristics: some observations on a recent study of betting market efficiency, 18. Efficiency characteristics of a market for state contingent claims, 19. Market ecology and decision behaviour in state-contingent claims markets, 20. Calibration of subjective probability judgements in a naturalistic setting