New research reveals how to make optimal decisions in risky situations.
The article explores how different types of risks affect decision-making in various scenarios. It looks at how people respond to uncertain benefits and costs, and how they adjust their exposure to risk accordingly. The researchers found that when facing uncertain benefits, individuals reduce their risk exposure, while responses to uncertain costs depend on the order of the risk change. Even-order risk changes increase riskiness, while odd-order changes reduce it. This discrepancy led to the introduction of new stochastic dominance relations to address uncertainty over costs.