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Revealing risky mistakes through revisions

Author

Listed:
  • Zachary Breig

    (The University of Queensland)

  • Paul Feldman

    (Texas A&M University)

Abstract

We argue that a choice that is modified, absent any informational change, is revealed to have been a mistake. In an experiment, we allow subjects to choose from budgets over binary lotteries. To identify mistakes, which we interpret as deviations from an underlying “true” preference, we allow subjects to revise a subset of their initial choices. The set of revised decisions improves under several standard definitions of optimality. These mistakes are prevalent: subjects modify over 75% of their initial choices when given the chance. Subjects make larger mistakes when inexperienced and when choosing over lotteries with small probabilities of winning.

Suggested Citation

  • Zachary Breig & Paul Feldman, 2024. "Revealing risky mistakes through revisions," Journal of Risk and Uncertainty, Springer, vol. 68(3), pages 227-254, June.
    • Handle: RePEc:kap:jrisku:v:68:y:2024:i:3:d:10.1007_s11166-024-09429-3
    DOI: 10.1007/s11166-024-09429-3
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    More about this item

    Keywords

    Mistakes; Risk preferences; Uncertainty; Revealed preference; Expected utility; Experiment;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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