Risk perception

Avoiding extreme situations seems to be a human nature. Assume that this rule also applies to people selecting decision heuristics. By selecting a high or low, the decision-maker will correspondingly have a high probability of rejecting or accepting an alternative since most of the information will fall into the overall value set that is lower or higher than . The advantage of representing the problem in a nearly monotone way is that the decision will be very simple and cost little mental effort, although at higher opportunity cost if the result would be better when the problem is judged under another standard. Such opportunity cost is related to the expected regret resulting from a potential false rejection or false acceptation. In contrast, selecting a mild will control the expected regret to a minimum by staying uncertain about the outcome at every stage of information search and looking for more information in order to get a comprehensive view of the object of interest. No doubt that the drawback of doing so is that it takes more mental effort.

Based on this conjecture, more outcome variety means lower decision risk. The degree of risk perception is determined by the location of and the probability beliefs. To model this property, Shannon's Information Entropy is applied because it was specifically developed for measuring information uncertainty. Let , corresponding to , be the joint product of the probability beliefs of attribute states. The probability of a positive, , respectively negative, , outcome equals:

(5.20)

where is an identity function being 1 when is true and being 0 when is false. The risk perception for heuristics within the same preference structure is the same because different information search sequences do not change the choice outcome. So the subscript h can be excluded. Then, the risk perception of a preference structure is:

(5.21)

Expected outcome

People prefer particular outcomes due to for example habits. This makes the selection of the judgment standards not a neutral process but it likely includes value biases. A decision standard, which leads to more probable occurrence of preferred outcomes, is more likely to be selected. Assuming that each outcome brings a particular value, the expected outcome can be represented as:

(5.22)

where is the value of the satisfactory outcome and is the value of the unsatisfactory outcome. The sequence of attribute processing does not have an influence.

In total, the value of a heuristic is defined as the linear combination of the three elements,

(5.23)

, the parameter of effort, is assumed to be negative because ekh represents a kind of cost, is assumed to be positive because people are assumed to prefer more outcome variety (high risk perception). The sign of needs to be empirically determined.