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Recent experimental evidence in experience-based decision-making suggests that people are more risk seeking in the gains domain relative to the losses domain. This critical result is at odds with the standard reflection effect observed in description-based choice and explained by Prospect Theory. The so-called reversed-reflection effect has been predicated on the extreme-outcome rule, which suggests that memory biases affect risky choice from experience. To test the general plausibility of the rule, we conducted two experiments examining how the magnitude of prospective outcomes impacts risk preferences. We found that while the reversed-reflection effect was present with small-magnitude payoffs, using payoffs of larger magnitude brought participants' behavior back in line with the standard reflection effect. Our results suggest that risk preferences in experience-based decision-making are not only affected by the relative extremeness but also by the absolute extremeness of past events.

Magnitude and incentives: revisiting the overweighting of extreme events in risky decisions from experience