Decision Making with Imperfect Knowledge of the State Space

We conduct an experiment to study how imperfect knowledge of the state space affects subsequent choices under uncertainty with perfect knowledge of the state space. Participants in our experiment choose between a sure outcome and a lottery in 32 periods. All treatments are exactly identical in periods 17 to 32 but differ in periods 1 to 16. In the early periods of the “Risk Treatment” there is perfect information about the lottery; in the “Ambiguity Treatment” participants perfectly know the outcome space but not the associated probabilities; in the “Unawareness Treatment” participants have imperfect knowledge about both outcomes and probabilities. All three treatments induce strong behavioural differences in periods 17 to 32. In particular participants who have been exposed to an environment with very imperfect knowledge of the state space subsequently choose lotteries with high (low) variance less (more) often compared to other participants. Estimating individual risk attitudes from choices in periods 17 to 32 we find that the distribution of risk attitude parameters across our treatments can be ranked in terms of first order stochastic dominance. Our results show how exposure to different degrees of uncertainty can have long-lasting effects on individuals’ risk-taking behaviour.microeconomics ;

Does Conflict affect Preferences? Results from Field Experiments in Burundi

We use experimental data from 35 randomly selected communities in Burundi to examine the impact of exposure to conflict on social-, risk- and time preferences. These types of preferences are important as they determine people’s propensity to invest and their ability to overcome social dilemmas, so that changes therein foster or hinder economic growth. We find that conflict affects preferences. Individuals that have been exposed to greater levels of violence display more altruistic behavior towards their neighbors, are more risk seeking, and have higher discount rates. Adverse, but temporary, shocks can thus alter savings and investments decisions, and potentially have long-run consequences.civil war, preferences, field experiments, Africa