Judgment and Decision Making, Vol. 2, No. 3, June 2007, pp. 189–203.
                      Theskill element in decision making under uncertainty: Control or
                                                                          competence?
                                                             AdamS.Goodie¤ andDianaL.Young
                                                                        University of Georgia
                                                                                  Abstract
                             Many natural decisions contain an element of skill. Modern conceptions of the skill component include control
                          (Goodie, 2003) and competence (Heath & Tversky, 1991). The control hypothesis states that a task’s skill component
                          (the sensitivity of the task to skill) affects decision making; the competence hypothesis states decision making is affected
                          only if the participant possesses the skill. Three experiments compared risk taking patterns between two groups. One
                          group faced bets on random events, and another group faced bets on their answers to general knowledge questions,
                          which is a task characterized by control. In Experiment 1, control increased risk taking markedly with all statistical
                          properties held constant. In Experiment 2, decisions made in domains of varying difficulty, and by individuals of
                          varying ability, yielded further qualified support for the role of competence. In Experiment 3, the role of control was
                          replicated, and participants’ perceptions of the differences in group treatments aligned more with the implications of
                          the control hypothesis than with the competence hypothesis. Results offered support for the control hypothesis across a
                          range of competence.
                          Keywords: control, competence, decision making, choice, betting, risk, overconfidence, college students.
                     1 Introduction                                                      1.1     Ambiguityandskill
                     Decisionresearchersknowagreatdealaboutthetermsof                    Ellsberg (1961) and many others have found that people
                     risk that people will accept and reject on random events            are generally ambiguity averse; in the domain of gains,
                     such as the drawing of a lottery number, rolling a die, or          peoplepreferaprospectinwhichprobabilitiesofpossible
                     pullingapokerchipfromabookbag. Lessisknownabout                     outcomes are known to a prospect in which probabilities
                     how individuals accept or reject risk when they are bet-            ofthesameoutcomesarenotstated(ambiguous)buthave
                     ting on their own golf putts, stock picks, organizational           the same average value. The major exception to this is at
                     decisions or answers to trivia questions.                           very low probabilities, where ambiguity is preferred. In
                        Researchers readily build models of decision making              the domain of losses, these preferences are reversed.
                     around risky decisions based on random events. Much                    Examination of the effect of a skill element constitutes
                     decision research is analogous to psychophysical percep-            a special case of ambiguity. What is Shaquille O’Neal’s
                     tion research, relating psychological events to objective           probability of making his next free throw? At the con-
                     criteria. A bookbag with 70 percent white and 30 per-               clusion of the 2006–07 season, his career free throw rate
                     cent red poker chips presents a clear objective criterion to        was 52.5%, but his free throw rate for the season was
                     which subjective perceptions may readily be compared.               only 42.2%. At his next free throw opportunity, he may
                     Sinking a free throw does not present such a clear crite-           be suffering from the flu, or coming off a terrible game,
                     rion with regard to its associated probabilities. For this          or on a hot streak, or he may merely believe he’s on a
                     reason, researchers have difficulty in evaluating perfor-            hot streak (Gilovich, Vallone, & Tversky, 1985). Unlike
                     mance relative to a normative criterion when the task is            a lottery draw, in which it is easier to construct a reason-
                     assessing the probability of a made free throw, as well             able estimate of the probability of winning (for example,
                     as in establishing valid lawful relationships between rel-          by reading the ticket), the sample space for a successful
                     evant probabilities and decisions.                                  free throw is not clearly defined. In other words, the pre-
                                                                                         diction of performance is variable over time in a skilled
                        ¤This research was supported by National Institutes of Health    task, hence it is more difficult to predict on the basis of
                     research grant MH067827.    Address correspondence to: Adam S.      pastperformance. Infact,mostdefinitionsofskillstateor
                     Goodie, Department of Psychology, University of Georgia, Athens,    imply that the person exerting skill can change the prob-
                     GA 30602–3013; Phone 706–542–6624; Fax 706–542–3275; Email
                     goodie@uga.edu                                                      ability of success.
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                   Judgment and Decision Making, Vol. 2, No. 3, June 2007                    Control and competence in bet acceptance      190
                      The existing evidence suggests that a skilled task that      fer. Across an assortment of situations, when betting on
                   determines an uncertain outcome has an effect on prob-          questions drawn from intermixed domains, the propor-
                   ability assessment and decision making that is distinct         tion of times that participants chose to bet on their knowl-
                   from that of ambiguity alone. For example, in demon-            edge was a steeply increasing function of the probability
                   strating the "illusion of control," Langer (1975) showed        of winning (Experiments 1 and 3). Because confidence
                   that people responded differently to vague likelihoods          consistently exceededaccuracyintheseexperiments,bet-
                   when certain superficial characteristics of the prospects        ting on a random event whose probability of winning was
                   weredistorted, for example when the familiar symbols of         equal to confidence was more likely to win than betting
                   a deck of cards were replaced by unfamiliar symbols, or         on the belief itself, and Heath and Tversky (1991) noted
                   whenparticipantswerepermittedtopracticeonarandom                that the acceptance of knowledge-basedbetsoverrandom
                   mechanism similar to a roulette wheel. Langer argued            bets resulted in a 15% loss of expected earnings.
                   that the changes in the appearance of a skill component           Heath and Tversky then (Experiment 4) tested the
                   caused changes in responses. Confidence ratings, bet ac-         competence hypothesis by drawing questions from dis-
                   ceptance and bet amounts were all affected by apparent          crete domains in which participants believed themselves
                   control, although the illusion of control is not robust to      to be either competent or incompetent. They observed
                   multi-shot gambles (Koehler, Gibbs, & Hogarth, 1994).           that, with subjective probability held constant, partici-
                   Participants bet more when given skill-relevant manipu-         pants displayed a consistent behavioral pattern: bets in a
                   lations such as being able to choose whether to receive         domain of competence were preferred to bets on random
                   more cards in a simulated blackjack game, but not when          events, which in turn were preferred to bets in a domain
                   given skill-irrelevant manipulations such as choosing a         of incompetence. They concluded that people seek out
                   different dealer (Chau & Phillips, 1995). Also, partici-        ambiguity in domains of competence but avoid it in areas
                   pants high in desire for control bet more than those low in     of incompetence.
                   desire for control on events over which they had falsely          Fox and Tversky (1995; Fox & Weber, 2002; see also
                   perceived control. Those high in desire for control bet         Chow&Sarin,2001)presentedacompaniontothecom-
                   less than others on events over which they did not have         petence hypothesis, the comparative ignorance hypoth-
                   illusory control (Burger & Schnerring, 1982).                   esis, positing that relative knowledge affects decisions
                                                                                   most strongly when the contrast between conditions of
                                                                                   greater and lesser competence is brought to the decision
                   1.2     Control and competence                                  maker’s attention.
                                                                                     These findings are notably contrary to the early ambi-
                   Recent research has advanced two major conceptions of           guity findings with random events: when evaluating bets
                   the role of skill in decision making: competence (Heath         on vaguely probable events with a skill component, par-
                   &Tversky,1991)andcontrol(Goodie,2003). Thesecon-                ticipants preferred the ambiguous (skilled) option at high
                   ceptions have important commonalities, sharing an em-           probabilities but preferred the unambiguous(random)op-
                   phasis on the role that the skill component of a task plays     tion at low probabilities. However, the evidence specifi-
                   in shaping decision making under uncertainty (apart from        cally in support of the control hypothesis remains limited
                   the probability and magnitude of possible outcomes. The         to Heath and Tversky’s Experiment 4 comparing just two
                   control hypothesis claims that people bet more when skill       domains under unusual selection techniques, which are
                   makesadifference;thecompetencehypothesisclaimsthe               discussed at more length below.
                   sameeffectbutonlywhenanindividualpossessestherel-                 More recent studies (Goodie, 2003) assessed risk atti-
                   evant skill. Control is a property of the task: if the task     tude by pitting a bet on knowledge item against no bet
                   requires actions that can be learned, then it is character-     at all, rather than a bet on a random event of equivalent
                   ized by control, even if a participant has not yet learned      probability. Goodie constructed bets on knowledge items
                   the skill. Competence, on the other hand, is an interactive     to be fair, having zero average marginal value if confi-
                   characteristicofboththetaskandtheperson: competence             dence was well calibrated. In the first two experiments,
                   exists only if the task both can be learned (the task com-      bet acceptance sharply increased as confidence increased
                   ponent) and has been learned (the person component).            for knowledge bets, bearing a striking resemblance to the
                      Heath and Tversky (1991) argued that people prefer to        comparable data obtained by Heath and Tversky (1991)
                   bet on questions about knowledge topics in which they           when using mixed-domain questions. In Experiment 3,
                   feel competent rather than incompetent. In their stud-          one group considered bets on their knowledge. The other
                   ies, participants chose to bet on either the correctness of     groupsconsideredbetsoneventsthatappearedrandomto
                   their answer to a general knowledge question or a ran-          participants but that Goodie constructed to be identical in
                   dom event whose probability matched their previously            every statistical way to bets on knowledge. Participants
                   stated confidence, with identical payoffs in each bet of-        accepted more bets on random events at low probabilities
                   Judgment and Decision Making, Vol. 2, No. 3, June 2007                    Control and competence in bet acceptance      191
                   and more bets on their knowledge at high probabilities,         competence and control in decisions under uncertainty.
                   revealing the anticipated crossover effect.                     The present experiments test the competence hypothe-
                      Animportantdifferencearisesbetweenstudiesthatuti-            sis against the control hypothesis by eliciting betting de-
                   lize questions drawn from a single domain (e.g., U.S. his-      cisions within domains of varying difficulty and among
                   tory) and those that use questions from mixed domains           participants of varying ability.
                   (e.g., Greek mythology, U.S. history, and sports).       As       The distinction between competence and control is
                   Heath and Tversky (1991) noted in discussing the dif-           most evident in a skill-based task in which a particular
                   ferences between single and mixed domains, low confi-            participant has little skill. The control hypothesis sug-
                   denceitemsinmixed-domainpopulationswillsystemati-               gests people bet more when skill could be attained, the
                   cally include more questions from low-competence do-            competence hypothesis only when it has been attained.
                   mains. Similarly, Gigerenzer (1991) noted the impor-            Wecan best differentiate between these two hypotheses
                   tance of utilizing single-domain questions in assessing         when skill could be attained but has not. The control
                   confidence in answers. In a mixed-domain set of gen-             hypothesis suggests the skill element does alter decision
                   eral knowledge questions, the methods used by the deci-         making under such conditions, whereas the competence
                   sion maker to generate confidence assessments become             hypothesis suggests it does not.
                   uninterpretable because the decision maker may be using
                   a different reference set than the experimenter. Asking         1.4    General Method
                   participants questions in a single domain allows for more
                   reliable representations of confidence across all questions      Wereport three experiments which use the methods de-
                   asked.                                                          veloped by Goodie (2003; Campbell, Goodie, & Foster,
                      There is reason to expect that control per se influences      2004). Thebasictaskoffairbetsonknowledgeusesthree
                   decision making. Skinner (1996), in a major review of           kinds of questions, administered in two phases.
                   theliterature, notes that “[w]hen people perceive that they
                   have a high degree of control, they exert effort, try hard,     1.4.1   Phase 1. General knowledge and confidence
                   initiate action, and persist in the face of failures and set-           assessment
                   backs; theyevinceinterest, optimism, sustainedattention,
                   problem solving, and an action orientation” (p. 556, cf.        The first question type was a two-alternative forced
                   Seligman, 1975). Where control prevails, a prospect with        choice question. Prior studies (Goodie, 2003) adapted
                   negative expected value, narrowly conceived, might also         questions from a collection (Nelson & Narens, 1980) that
                   be an opportunity to learn new skill that will result in fu-    sampled from diverse domains. The present studies ran-
                   ture prospects with positive value, and might therefore         domlyselectedquestionsfromfivewell-defineddomains.
                   be worth accepting. This is an interesting complement to        Three question populations selected two of the 50 U.S.
                   thenormativeargumentmadebyFrischandBaron(1988;                  states at random and asked for a binary comparison on
                   Baron, 2000) that other ambiguous prospects, even with          one statistic: population, land area, or population den-
                   positive expected value, might be worth postponing un-          sity, manipulated between-subjects. The other two ques-
                   til further information is available to permit better-valued    tion populations randomly selected two of the 50 largest
                   decisions. We argue that ambiguous prospects character-         U.S.citiesandelicitedacomparisonofthecitiesoneither
                   ized by control, even with negative expected value, might                                                           1
                                                                                   population or driving distance to Athens, Georgia.
                   be worth pursuing in order to set up better-valued deci-          The second question type asked for an assessment of
                   sions later. The possibility of accepting bets in order to      confidence in each question, placed in one of the follow-
                   increase skill does not apply when competence already           ingcategories: 50–52%,53–60%,61–70%,71–80%,81–
                   exists, only when the possibility of exerting control to in-    90%, 91–97%, and 98–100%. In a binary task such as
                   crease competence prevails.                                     this one, the range of 50%-100% reflects the full range
                                                                                   of competence, from complete ignorance where accu-
                   1.3     Thepresentexperiments                                   racy would be 50% and confidence should not be much
                                                                                   higher, to absolute knowledge where accuracy and confi-
                   The goals of this paper are: a) to compare across do-           dence are both 100%. Confidence was taken as the mid-
                   mains wherein people have different degrees of compe-              1State population was taken as the 1999 Census Bureau estimate,
                   tence, in order to observe the degree to which variation in     and population density was the ratio of population to land area. Ques-
                   competence makes a difference in risk attitude; b) to ex-       tions involving city comparisons used the 50 largest metropolitan areas
                   tend the risk-attitude findings of Goodie (2003) to single-      in the continental U.S., to eliminate the confusion involved in consid-
                   domainformats,amanipulationthatmadeaconsiderable                ering driving distance to San Juan, Puerto. City population was taken
                   difference in the ambiguity-attitude findings of Heath and       as the population of the entire metropolitan area as identified by the
                                                                                   Census Bureau (this was made clear in the instructions), and driving
                   Tversky (1991); and c) to begin to compare the roles of         distance was the distance to the central city.
                   Judgment and Decision Making, Vol. 2, No. 3, June 2007                    Control and competence in bet acceptance      192
                   point of the selected confidence category. We used these           In the Gains Only structure, the certain option was a
                   categories to assess risk taking across a well-defined ar-       gain of 100 points. The bet offered a gain of 100 /confi-
                   ray of probabilities from chance to certainty, combining        dence points if the answer was correct and no gain if the
                   equal spacing of categories in the mid-range and greater        answer was wrong. So, if the participant bet on an an-
                   discrimination near the endpoints.      This range confers      swer in which she had 75% confidence, she won 100/.75
                   the advantages of reflecting all binary choices and being        = 133 points if the answer was correct but nothing if the
                   simple and easily understood, although it also bears the        answer was wrong. She gained 100 points if she rejected
                   clear limitations of excluding half the probability spec-       the bet. It is easy to show that the average outcome of ac-
                   trum. These studies adopted confidence elicitation meth-         cepting a bet in either format is equal to the certain option
                   ods without alteration from those used by Goodie (2003;         (no change in the Mixed format or a gain of 100 points in
                   Campbell et al., 2004).                                         Gains Only) if p(correct) = confidence, less than the cer-
                                                                                   tain option if p(correct) < confidence, and greater than
                   1.4.2   Phase 2. Betting on answers                             the certain option if p(correct) > confidence.
                   Athird question type elicited acceptance or rejection of        1.4.4   “Answers”and“Random”groups
                   a bet on the correctness of each answer that was given.
                   Participants played out these bets for point accumula-          In Experiments 1 and 3, we randomly assigned partici-
                   tions that were not backed by monetary incentives. In           pants to two groups that differed in whether they believed
                   all conditions, participants faced a two-alternative choice     they were betting on their knowledge or on a random
                   between a certain outcome and a bet. The bet was al-            event. The Answers group bet on their answers, using
                   ways fair, having average value equal to the certain op-        either the Mixed or Gains Only format in different exper-
                   tion if the participant’s confidence judgment was well-          iments. TheRandomgroup’sbetsheldallstatisticalprop-
                   calibrated.  Its average value was less than that of the        erties constant, differing from the Answers group’s only
                   certain option if the participant was overconfident and          in appearing to rely on random events rather than partic-
                   greater than the certain option if the participant was un-      ipants’ answers. Many dimensions of bets on knowledge
                   derconfident. Afteracceptingorrejectingthebet,thepar-            are determined by the participants’ responses, such as the
                   ticipant received feedback, including the correct answer        distribution of subjective probabilities of winning (deter-
                   to the question, the number of points gained or lost (in-       mined by confidence), the frequency of winning (deter-
                   cluding if no points were gained or lost), and the cumula-      mined by accuracy), and any order effects on these di-
                   tive point total.                                               mensions (for example, if overconfidence declines with
                                                                                   experience, cf. Sieck & Arkes, 2005, or accuracy de-
                   1.4.3   Thebetting formats                                      clines with fatigue, or any number of other possibilities).
                                                                                   Bybasingtheapparentlyrandombetsontheparticipant’s
                   We used two betting formats, with Mixed gains and               responses, we can rule out these and any other alternative
                   losses, and Gains Only. The Mixed format was used in            explanations based on such statistical properties of the re-
                   order to reflect the structure of many risks which contain       sponses of participants in the Answers condition.
                   the possibility of either gain or loss. The Gains Only for-       Bets that appeared stochastic in fact relied on partici-
                   matwasusedtoeliminatethecomplexityofpossiblydif-                pants’ answers and confidence assessments in the knowl-
                   fering value and weighting for gains and losses. We de-         edge questions. In the betting phase, each answer was
                   signed both betting formats to provide average outcomes         converted into a bet on a seemingly random event with
                   that were equal if the bet was accepted or rejected, as-        the stated probability of winning equal to assessed confi-
                   suming good calibration. Betting formats were always            denceinacorrespondingtriviaanswer; thecorrectnessof
                   varied between subjects, or were kept constant within an        the corresponding answer determined the bet’s outcome.
                   experiment, so that no participant needed to comprehend,        For example, if a participant expressed 75% confidence
                   remember, or distinguish between both.                          in her answer to the first question, then the first bet she
                      In the Mixed format, the certain option was no change        encountered in the betting phase instructed: "A number
                   in points, and the bet provided for a gain of 100 points if     will be chosen at random between 0 and 100, and to win
                   the answer was correct or a loss of 100 * confidence/(1-         the bet, the Chosen number must be less than or equal
                   confidence) points if the answer was incorrect. For ex-          to the Magic Number. The Magic Number this time is:
                   ample, if a participant was 75% confident in an answer,          75. If the chosen number is LESS THAN or equal to
                   then she considered a bet wherein she won 100 points if         the Magic Number, you gain 100 points. If the chosen
                   the answer was correct but a loss of 100 * (.75/.25) = 300      number is greater than the Magic Number, you lose 300
                   points if the answer was wrong. If she rejected the bet,        points." If the participant accepted the bet, she won the
                   she did not gain or lose any points.                            bet if her answer to the corresponding question was cor-