Do Individuals Learn To Maximise Expected Utility?

Violations of expected utility theory are sometimes attributed to imprecise preferences interacting with a lack of learning opportunity in the experimental laboratory. This paper reports a test of whether conditions which facilitate objective probability learning yield decisions better described by expected utility theory than is the case in experiments devoid of learning opportunity. The data show that expected utility maximising behaviour increases with the learning opportunity, but so too do systematic violations. Learning, therefore, may exacerbate choice anomalies.

Prospect relativity: how choice options influence decision under risk.

In many theories of decision under risk (e.g., expected utility theory, rank-dependent utility theory, and prospect theory), the utility of a prospect is independent of other options in the choice set. The experiments presented here show a large effect of the available options, suggesting instead that prospects are valued relative to one another. The judged certainty equivalent for a prospect is strongly influenced by the options available. Similarly, the selection of a preferred prospect is strongly influenced by the prospects available. Alternative theories of decision under risk (e.g., the stochastic difference model, multialternative decision field theory, and range frequency theory), where prospects are valued relative to one another, can provide an account of these context effects

Prospect relativity: How choice options influence decision under risk

In many theories of decision under risk (e.g., expected utility theory, rank-dependent utility theory, and prospect theory), the utility of a prospect is independent of other options in the choice set. The experiments presented here show a large effect of the available options, suggesting instead that prospects are valued relative to one another. The judged certainty equivalent for a prospect is strongly influenced by the options available. Similarly, the selection of a preferred prospect is strongly influenced by the prospects available, Alternative theories of decision under risk (e.g., the stochastic difference model, multialternative decision field theory, and range frequency theory), where prospects are valued relative to one another, can provide an account of these context effects

Content-dependent Preferences in Choice under Risk: Heuristic of Relative Probability Comparisons

Individual decision making under risk is the key component of any economic activity, especially in transition economies where people are confronted with various risks and uncertainties in situations of private and public choice, which have never been experienced before. Such choices are typically irreversible and taken under time constraints. This paper provides experimental evidence of content-dependent preferences in individual choice under risk. The heuristic of relative probability comparisons suggests that individuals choose the lottery, which is most likely to outperform all other feasible lotteries. This heuristic is ordinal in outcomes, which makes it a simple and plausible decision procedure. However, the heuristic can lead not only to a significant bias when choosing between two yields of equal performance but also to intransitive preferences in their ranking of alternative decisions. The experimental results demonstrate the following prediction: in some choice situations the majority of decision making agents indeed uses the heuristic of relative probability comparisons, and in consequence, around 55% of them violate transitivity and 65% violate weak axiom of revealed preference (WARP). The most important contribution of this paper is the experimental documentation of a very high incidence of asymmetric intransitive preferences. These preferences can be rationalized as the content-dependent preferences induced by the use of the heuristic of relative probability comparisons

Does consistency predict accuracy of beliefs?: Economists surveyed about PSA

Subjective beliefs and behavior regarding the Prostate Specific Antigen (PSA) test for prostate cancer were surveyed among attendees of the 2006 meeting of the American Economic Association. Logical inconsistency was measured in percentage deviations from a restriction imposed by Bayes’ Rule on pairs of conditional beliefs. Economists with inconsistent beliefs tended to be more accurate than average, and consistent Bayesians were substantially less accurate. Within a loss function framework, we look for and cannot find evidence that inconsistent beliefs cause economic losses. Subjective beliefs about cancer risks do not predict PSA testing decisions, but social influences do.logical consistency, predictive accuracy, elicitation, non-Bayesian, ecological rationality

Does Consistency Predict Accuracy of Beliefs?: Economists Surveyed About PSA

Subjective beliefs and behavior regarding the Prostate Specific Antigen (PSA) test for prostate cancer were surveyed among attendees of the 2006 meeting of the American Economic Association. Logical inconsistency was measured in percentage deviations from a restriction imposed by Bayes’ Rule on pairs of conditional beliefs. Economists with inconsistent beliefs tended to be more accurate than average, and consistent Bayesians were substantially less accurate. Within a loss function framework, we look for and cannot find evidence that inconsistent beliefs cause economic losses. Subjective beliefs about cancer risks do not predict PSA testing decisions, but social influences do.logical consistency, predictive accuracy, elicitation, non-Bayesian, ecological rationality

Decision theory under uncertainty

We review recent advances in the field of decision making under uncertainty or ambiguity.Ambiguity ; ambiguity aversion ; uncertainty ; decision