Utility functions predict variance and skewness risk preferences in monkeys

• Published in: Proceedings of the National Academy of Sciences - PNAS Vol. 113; no. 30; pp. 8402 - 8407
• Main Authors: Genest, Wilfried, Stauffer, William R., Schultz, Wolfram
• Format: Journal Article
• Language: English
• Published: United States National Academy of Sciences 26.07.2016
• Subjects: Animal behavior; Animals; Biological Sciences; Choice Behavior - physiology; Decision Making - physiology; Logistic Models; Macaca mulatta - physiology; Macaca mulatta - psychology; Male; Models, Statistical; Monkeys & apes; Photic Stimulation; Reward; Risk assessment; Risk-Taking; Social Sciences; Stochastic models; Utility functions; neuroeconomics; experimental economics; choice; stochastic dominance; decision making
• ISSN: 0027-8424; 1091-6490
• DOI: 10.1073/pnas.1602217113

Utility is the fundamental variable thought to underlie economic choices. In particular, utility functions are believed to reflect preferences toward risk, a key decision variable in many real-life situations. To assess the validity of utility representations, it is therefore important to examine risk preferences. In turn, this approach requires formal definitions of risk. A standard approach is to focus on the variance of reward distributions (variance-risk). In this study, we also examined a form of risk related to the skewness of reward distributions (skewness-risk). Thus, we tested the extent to which empirically derived utility functions predicted preferences for variance-risk and skewness-risk in macaques. The expected utilities calculated for various symmetrical and skewed gambles served to define formally the direction of stochastic dominance between gambles. In direct choices, the animals’ preferences followed both second-order (variance) and third-order (skewness) stochastic dominance. Specifically, for gambles with different variance but identical expected values (EVs), the monkeys preferred high-variance gambles at low EVs and low-variance gambles at high EVs; in gambles with different skewness but identical EVs and variances, the animals preferred positively over symmetrical and negatively skewed gambles in a strongly transitive fashion. Thus, the utility functions predicted the animals’ preferences for variance-risk and skewness-risk. Using these well-defined forms of risk, this study shows that monkeys’ choices conform to the internal reward valuations suggested by their utility functions. This result implies a representation of utility in monkeys that accounts for both variance-risk and skewness-risk preferences.