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Colour-coded decisions: an experiment on case-based decision theory

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  • Benjamin Radoc

    (Ateneo de Manila University
    Bangko Sentral ng Pilipinas)

Abstract

Decision makers typically possess limited knowledge on states of the world so that use of information from past similar experiences is reasonable. This analogical thinking is formalised by case-based decision theory (CBDT). We created a novel experimental setting to validate the predictive power of CBDT versus Bayesian reasoning. Participants encountered a salient but irrelevant cue which a Bayesian decision maker is likely to ignore but a case-based decision maker may use in assessing similarity. We find that although the irrelevant similarity cue was used, the pattern in participants’ decisions is neither case-based nor Bayesian. The results suggest that CBDT does not apply in simple decision settings where similarity cues are uninformative.

Suggested Citation

  • Benjamin Radoc, 2024. "Colour-coded decisions: an experiment on case-based decision theory," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 10(2), pages 519-530, December.
    • Handle: RePEc:spr:jesaex:v:10:y:2024:i:2:d:10.1007_s40881-024-00177-3
    DOI: 10.1007/s40881-024-00177-3
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    References listed on IDEAS

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    1. Zhao, Jinhua & Kling, Catherine L., 2001. "A new explanation for the WTP/WTA disparity," Economics Letters, Elsevier, vol. 73(3), pages 293-300, December.
    2. Itzhak Gilboa & David Schmeidler, 1995. "Case-Based Decision Theory," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(3), pages 605-639.
    3. Gilboa,Itzhak & Schmeidler,David, 2001. "A Theory of Case-Based Decisions," Cambridge Books, Cambridge University Press, number 9780521802345, November.
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    5. Benjamin Radoc & Robert Sugden & Theodore L. Turocy, 2019. "Correlation neglect and case-based decisions," Journal of Risk and Uncertainty, Springer, vol. 59(1), pages 23-49, August.
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    9. Andrea Isoni & Graham Loomes & Robert Sugden, 2011. "The Willingness to Pay—Willingness to Accept Gap, the "Endowment Effect," Subject Misconceptions, and Experimental Procedures for Eliciting Valuations: Comment," American Economic Review, American Economic Association, vol. 101(2), pages 991-1011, April.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Bayesian reasoning; Case-based decision; Gambler’s fallacy; Similarity;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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