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Experimental investigations of errors in decision making under risk

In: Experiments in Economics Decision Making and Markets

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  • John D. Hey

Abstract

Many, if not all, of the recent theories of decision making under risk, that have been developed in the light of experimentally observed violations of Expected Utility theory, are essentially deterministic in nature, yet it is clear that actual decision making contains a random or error component. This paper surveys the assumptions that have been employed in previous analyses of such experimental data, and tries to find better explanations (both from an economic and an econometrics point of view), of such errors. Hopefully, such work will lead to a unified theory, in which the stochastic component is an integral part.

Suggested Citation

  • John D. Hey, 2018. "Experimental investigations of errors in decision making under risk," World Scientific Book Chapters, in: Experiments in Economics Decision Making and Markets, chapter 17, pages 381-388, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813235816_0017
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    1. Harless, David W & Camerer, Colin F, 1994. "The Predictive Utility of Generalized Expected Utility Theories," Econometrica, Econometric Society, vol. 62(6), pages 1251-1289, November.
    2. Hey, John D. & Carbone, Enrica, 1995. "Stochastic choice with deterministic preferences: An experimental investigation," Economics Letters, Elsevier, vol. 47(2), pages 161-167, February.
    3. Smith, Vernon L & Walker, James M, 1993. "Monetary Rewards and Decision Cost in Experimental Economics," Economic Inquiry, Western Economic Association International, vol. 31(2), pages 245-261, April.
    4. John D. Hey & Chris Orme, 2018. "Investigating Generalizations Of Expected Utility Theory Using Experimental Data," World Scientific Book Chapters, in: Experiments in Economics Decision Making and Markets, chapter 3, pages 63-98, World Scientific Publishing Co. Pte. Ltd..
    5. Chew, S H & Epstein, Larry G & Segal, U, 1991. "Mixture Symmetry and Quadratic Utility," Econometrica, Econometric Society, vol. 59(1), pages 139-163, January.
    6. Ballinger, T Parker & Wilcox, Nathaniel T, 1997. "Decisions, Error and Heterogeneity," Economic Journal, Royal Economic Society, vol. 107(443), pages 1090-1105, July.
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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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