Certainty Equivalent Procedure (CEP)

Background

The Certainty Equivalent Procedure (CEP) is an adaptive, behavioral titration task designed to establish a person's exact indifference point between a guaranteed reward and an uncertain gamble, functioning procedurally like a probability discounting task (see Delay Discounting Tasks).

It was published by Martin P. Paulus and Lawrence R. Frank in 2006 within the framework of Prospect Theory in Behavioral Economics to measure nonlinear (aka somewhat ‘irrational’ according to traditional Economics Theory) human decision making and risk aversion under uncertainty. Their core goal was to identify the neural substrates that are important for nonlinear risk calculations during functional magnetic resonance imaging, identifying the anterior cingulate cortex (ACC) as a main contender: Risk-averse behavior for mid-to-high probability prospects and risk-seeking behavior for low-probability prospects were significantly correlated with a lack of controlled processing in the ACC.

Task Procedure

Participants work on 7 probability prospects similarly to "would you rather have a 1/10 chance to win $1000 or get $333 for sure?" to determine the participants' indifference points to the probabilistic gambles.

Each of the 7 prospects are tested with 4 iterations and 2 trials per iteration. The gamble stays constant for each iteration while the sure bet is systematically varied. The first trial per iteration uses the lower third of the current range as the sure bet while the second trial uses the middle third of the current range as the sure bet. For the above example, the starting range is set by the probabilistic gamble: $0-1000. The lower third of the range is set to $333 which is used as the sure bet for the first question. The middle third of the range is set to $666 which is used as the sure bet for the first questions. Depending on the response pattern, the range is narrowed down to the lower third, middle third, or upper third of the last tested range. For example, if a participant takes the sure bet in each case, their IP likely lies in the 0-333 range, and thus the next iteration would use the weights $111 and $222 to narrow down the range even further. If a participant declines the sure bet of $333 but takes the sure bet at $666, their IP likely lies between $333 and $666. For this participant, the next iteration would use $444 and $555 to narrow down the range. Once a certain number of iterations -narrowing the range of values each time- have been run, the IP is simply calculated as the midpoint of the last determined range.

For each prospect, participants get (1) the gambling option (e.g. "1/10 chance to win $1000) and (2) the sure bet (e.g. "$333 for sure"), and participants must enter "1" or "2" to make their choice. After the selection is made, the choice is highlighted for 1 second. After an additional delay of 1 second, the next choice is presented.

What it Measures

The Certainty Equivalent Procedure (CEP) is a measure of indifference points to probabilistic gambles

Psychological domains

• Decision-making: Response to potential rewards and losses over time
• Risk-taking: Preference for high-reward/high risk or low-reward/low-risk
• Delay Discounting: Foregoing immediate rewards for better long-term outcomes
• Behavioral Economics: A field that combines psychology and economics to study why people often make irrational or non-optimal economic decisions

Main Performance Metrics

• Indifference Points: Estimated indifference points for the seven probability prospects

Psychiatric Conditions

The Certainty Equivalent Procedure (CEP) has been used to test the following patient groups:

• Substance Use Disorder
• Borderline Personality Disorder (BPD)
• Major Depressive Disorder (MDD)
• Anxiety
• Autism Spectrum Disorder (ASD)

References

Search Google Scholar for peer-reviewed, published research using the Inquisit Certainty Equivalent Procedure (CEP).

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Tversky, A., & Kahneman, D. (October 01, 1992). Advances in prospect theory: Cumulative representation of uncertainty. Journal of Risk and Uncertainty, 5, 4, 297-323.

Cho, Y., & Luce, R. D. (January 01, 1995). Tests of Hypotheses about Certainty Equivalents and Joint Receipt of Gambles. Organizational Behavior and Human Decision Processes, 64, 3, 229-248.

Budescu, D. V., Kuhn, K. M., Kramer, K. M., & Johnson, T. R. (January 01, 2002). Modeling certainty equivalents for imprecise gambles. Organizational Behavior and Human Decision Processes, 88, 2, 748-768.

Paulus, M. P., & Frank, L. R. (April 01, 2006). Anterior cingulate activity modulates nonlinear decision weight function of uncertain prospects. Neuroimage, 30, 2, 668-677.