Why do people like members of their own group with whom they interact frequently and have a negative view of members of other groups that they meet more seldom? What explains risk averse behavior? What do people tend to distrust others? Existing explanations attribute such effects to innate preferences, bounded rationality, and the motivation to reduce cognitive dissonance. The Hot Stove Effect suggests an alternative, sampling-based explanation, of how biases in beliefs and attitudes can emerge from asymmetries in the information people get exposed to.
The key mechanism is that people tend to avoid activities they have had a negative experience of, resulting in a negativity bias. The social environment breaks this negativity bias by exposing people to activities and objects they might otherwise have avoided: people get exposed to the activities their friends engage in, that their bosses instruct them to do, etc. By shaping the information to which people have access, the social structure has systematic effects on belief formation.
This sampling approach offers alternative explanations, with distinct empirical predictions, for a wide range of belief and attitude patterns, including in-group bias, cynicism, preference for popular and novel items, attitude polarization across social groups, and risk aversion.
There is good experimental evidence in support of the Hot Stove Effect and empirical researchers in psychology and management have applied it to explain regularities in both firm and individual behavior. Researchers in finance (Dittmar and Duchin, 2016, Review of Financial Studies) recently showed that the hot stove effect can explain risk taking behavior by CEO's and CFO's. Using data on the past careers of these managers, Dittmar and Duchin examined whether managers had experience of being employed in firms that filed for bankruptcy or firms that experienced other adverse financial shocks. Managers with such adverse experiences were significantly more risk averse in the sense that they held less debt and invested less. Researchers in psychology have shown that the hot stove effect explains why risk taking declines with experience (people stop sampling alternatives they had a negative experiences with and the probability that a negative experience has occurred increases over time, Erev et al, 2010, Journal of Behavioral Decision-Making) and why people underestimate the trustworthiness of others (if people false believe that others cannot be trusted they avoid them and by avoiding them their false belief cannot be disconfirmed, see Fetchenhauer & Dunning, 2010, Psychological Science).
References:
Denrell, J. and G. Le Mens (2020). ”Revisiting the Competency Trap”. Industrial and Corporate Change, 29 (1), 183-205.
Le Mens, G., J. Denrell, B. Kovacs, & H. Karaman. (2018). ”Information Sampling, Judgment, and the Environment: Application to the Effect of Popularity on Evaluation.” Topics in Cognitive Science, Forthcoming.
Denrell, J. and G. Le Mens. (2017). Information Sampling, Belief Synchronization and Collective Illusions, Management Science, 63(2): 528-547.
Le Mens, G. and Denrell, J. (2011). “Rational Learning and Information Sampling: On the ‘Naivety’ Assumption in Sampling Explanations of Judgment Biases." Psychological Review, 118 (2): 379-392.
Denrell, J. and G. Le Mens (2011). “Seeking Positive Experiences Can Produce Illusory Correlations”. Cognition, 119: 313-324.
Denrell, J. (2008). Perspective: Indirect Social Influence. Science, 321 (July 4): 47-48.
Denrell, J. and G. Le Mens (2007). “Interdependent Sampling and Social Influence.” Psychological Review, 114 (2): 398-422.
Denrell, J. (2007). “Adaptive Learning and Risk Taking.” Psychological Review, 114 (1): 177-187.
Denrell, J. (2005). “Why Most People Disapprove of Me: Experience Sampling in Impression Formation”. Psychological Review, 112 (4), 951-978.
Denrell, J. and J. G. March (2001). “Adaptation as Information Restriction: The Hot Stove Effect,” Organization Science, 12 (5): 523-538.