Sara Arts portretfoto
Sara Arts portretfoto

Make the right decision? That is more complex than you think

Say you take part in an experiment where you’re given the choice between winning €5 for sure or having a 50% chance of winning €10 or nothing. Will you go for safety or take a risk? And would you still make the same choice if the €10 turned into €9? Sara Arts, PhD candidate in Financial Economics, studies how individuals make financial decisions in complex situations and what processes are involved.

Arts: “In our experiment, participants can earn money. We present them with a range of options and keep changing the odds and amounts. Will someone choose a fixed win of €5 or will they take a gamble? And will this person still make the same choice once the win amount or odds change? By asking people to make decisions in different situations, you gain insight into the patterns behind their decisions.”

Arts' experiment shows that individuals make inconsistent choices when they are uncertain about their options. Arts: “When we’re uncertain about which option is best, we tend to shift, and for example make choices that are more in the middle.” Insufficient understanding of the rules of the experiment itself also determines how participants choose. Arts: “If we do not sufficiently understand the decision situation, we may not understand the consequences of our choices. And we sometimes see that a kind of negotiation mentality emerges. We devise strategies to spread risks or to profit from something. While that is not the case at all in the experiment itself.”

Sara Arts portretfoto

People’s behaviour does not reflect their real preferences

According to Arts, the research study shows that decisions that are actually very simple can nevertheless become very complex due to a variety of factors. And that people's behaviour ultimately does not reflect their real preferences. Arts: “Our research clearly shows that a person can only make an optimal choice if they both understand the options well and are sure about their preferences.”

Arts hopes to use the results of the experiment to offer insights into the choices people make in real life. Arts: “We make decisions, often complex ones, all day long. What choices should we make regarding our loans and pensions? But also: Who will we marry? Where will we live? Understanding how people make decisions is valuable for countless policy papers.”

Complex choices and financial ownership

In another project, Arts is studying the consequences of financial choices in complex situations on people's income and assets, among other things. In this context, she has access to the data of Statistics Netherlands. Arts: “We already know that there is a link between demographics and the extent to which people experience complexity in their choices; it's just that this has so far been based primarily on indirect data. Now I can explore this using real data.”

For her PhD research, Arts was awarded a Christine Mohrmann Stipendium, an award of €5,000 that allows promising PhD candidates to add more depth to their research. The stipend will allow Arts to extend her trip to England, something she has been planning for some time. She will present and discuss her research findings at Birmingham University, and gather some feedback.

Photo: Duncan de Fey

Text: Annette Zonnenberg

Contact information

Organizational unit
Nijmegen School of Management