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Experience and rationality under risk: re-examining the impact of sampling experience

Author

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  • Ilke Aydogan

    (IESEG School of Management
    Bocconi University)

  • Yu Gao

    (Peking University)

Abstract

A recent strand of the literature on decision-making under uncertainty has pointed to an intriguing behavioral gap between decisions made from description and decisions made from experience. This study reinvestigates this description-experience gap to understand the impact that sampling experience has on decisions under risk. Our study adopts a complete sampling paradigm to address the lack of control over experienced probabilities by requiring complete sampling without replacement. We also address the roles of utilities and ambiguity, which are central in most current decision models in economics. Thus, our experiment identifies the deviations from expected utility due to over- (or under-) weighting of probabilities. Our results confirm the existence of the behavioral gap, but they provide no evidence for the underweighting of small probabilities within the complete sampling treatment. We find that sampling experience attenuates rather than reverses the inverse S-shaped probability weighting under risk.

Suggested Citation

  • Ilke Aydogan & Yu Gao, 2020. "Experience and rationality under risk: re-examining the impact of sampling experience," Experimental Economics, Springer;Economic Science Association, vol. 23(4), pages 1100-1128, December.
    • Handle: RePEc:kap:expeco:v:23:y:2020:i:4:d:10.1007_s10683-019-09641-y
    DOI: 10.1007/s10683-019-09641-y
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    Cited by:

    1. Robin Cubitt & Orestis Kopsacheilis & Chris Starmer, 2022. "An inquiry into the nature and causes of the Description - Experience gap," Journal of Risk and Uncertainty, Springer, vol. 65(2), pages 105-137, October.
    2. repec:cup:judgdm:v:17:y:2022:i:5:p:1146-1175 is not listed on IDEAS
    3. repec:jdm:journl:v:17:y:2022:i:5:p:1146-1175 is not listed on IDEAS
    4. Raman Kachurka & Michał Krawczyk & Joanna Rachubik, 2021. "State lottery in the lab: an experiment in external validity," Experimental Economics, Springer;Economic Science Association, vol. 24(4), pages 1242-1266, December.

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