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Which decision theory?

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  • Blavatskyy, Pavlo

Abstract

A new laboratory experiment is designed to identify the best theories for describing decisions under risk. The experimental design has two noteworthy features: a representative sample of binary choice problems (for fair comparison across theories) and a lottery set with a small number of outcomes and probabilities (for ease of non-parametric estimation). We find that a simple heuristic, rank-dependent utility and expected utility theory provide the best goodness of fit.

Suggested Citation

  • Blavatskyy, Pavlo, 2013. "Which decision theory?," Economics Letters, Elsevier, vol. 120(1), pages 40-44.
    • Handle: RePEc:eee:ecolet:v:120:y:2013:i:1:p:40-44
    DOI: 10.1016/j.econlet.2013.03.039
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    References listed on IDEAS

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    18. Pavlo R. Blavatskyy, 2011. "A Model of Probabilistic Choice Satisfying First-Order Stochastic Dominance," Management Science, INFORMS, vol. 57(3), pages 542-548, March.
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    Citations

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    Cited by:

    1. Nathaniel T. Wilcox, 2023. "Unusual Estimates of Probability Weighting Functions," Research in Experimental Economics, in: Models of Risk Preferences: Descriptive and Normative Challenges, volume 22, pages 69-106, Emerald Group Publishing Limited.
    2. Latifa Ghalayini & Dana Deeb, 2021. "Utility Measurement in Integrative Negotiation," Information Management and Business Review, AMH International, vol. 13(1), pages 1-15.
    3. Pavlo R. Blavatskyy & Francesco Feri, 2018. "Violations of betweenness and choice shifts in groups," Theory and Decision, Springer, vol. 85(3), pages 321-331, October.
    4. Nathaniel T. Wilcox, 2015. "Error and Generalization in Discrete Choice Under Risk," Working Papers 15-11, Chapman University, Economic Science Institute.
    5. Simone Ferrari-Toniolo & Leo Chi U. Seak & Wolfram Schultz, 2022. "Risky choice: Probability weighting explains independence axiom violations in monkeys," Journal of Risk and Uncertainty, Springer, vol. 65(3), pages 319-351, December.
    6. Blavatskyy, Pavlo, 2016. "Probability weighting and L-moments," European Journal of Operational Research, Elsevier, vol. 255(1), pages 103-109.
    7. Pavlo Blavatskyy, 2018. "A second-generation disappointment aversion theory of decision making under risk," Theory and Decision, Springer, vol. 84(1), pages 29-60, January.

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    More about this item

    Keywords

    Decision theory; Risk; Expected utility theory; Rank-dependent utility; Heuristic;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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