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The explanatory and predictive power of non two-stage-probability theories of decision making under ambiguity

In: Experiments in Economics Decision Making and Markets

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  • John D. Hey
  • Noemi Pace

Abstract

Representing ambiguity in the laboratory using a Bingo Blower (which is transparent and not manipulable) and asking the subjects a series of allocation questions, we obtain data from which we can estimate by maximum likelihood methods (with explicit assumptions about the errors made by the subjects) a significant subset of particular parameterisations of the empirically relevant models of behaviour under ambiguity, and compare their relative explanatory and predictive abilities. Our results suggest that not all recentmodels of behaviour represent a major improvement in explanatory and predictive power, particularly the more theoretically sophisticated ones.

Suggested Citation

  • John D. Hey & Noemi Pace, 2018. "The explanatory and predictive power of non two-stage-probability theories of decision making under ambiguity," World Scientific Book Chapters, in: Experiments in Economics Decision Making and Markets, chapter 6, pages 139-167, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813235816_0006
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    More about this item

    Keywords

    Experimental Economics; Risk; Ambiguity; Markets; Auctions; Bargaining; Econometrics; Methodology;
    All these keywords.

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General

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