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Why We Should Not Be Silent About Noise

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  • John Hey

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Abstract

There is an odd contradiction about much of the empirical (experimental) literature: The data is analysed using statistical tools which presuppose that there is some noise or randomness in the data, but the source and possible nature of the noise are rarely explicitly discussed. This paper argues that the noise should be brought out into the open, and its nature and implications openly discussed. Whether the statistical analysis involves testing or estimation, the analysis inevitably is built upon some assumed stochastic structure to the noise. Different assumptions justify different analyses, which means that the appropriate type of analysis depends crucially on the stochastic nature of the noise. This paper explores such issues and argues that ignoring the noise can be dangerous. Copyright Springer Science + Business Media, Inc. 2005

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File URL: http://hdl.handle.net/10.1007/s10683-005-5373-8
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Bibliographic Info

Article provided by Springer in its journal Experimental Economics.

Volume (Year): 8 (2005)
Issue (Month): 4 (December)
Pages: 325-345

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Handle: RePEc:kap:expeco:v:8:y:2005:i:4:p:325-345

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Web page: http://www.springerlink.com/link.asp?id=102888

Related research

Keywords: noise; stochastic assumptions; testing; estimation; inferences;

References

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  1. Ballinger, T Parker & Wilcox, Nathaniel T, 1997. "Decisions, Error and Heterogeneity," Economic Journal, Royal Economic Society, vol. 107(443), pages 1090-1105, July.
  2. Glenn Harrison & John List, 2004. "Field experiments," Artefactual Field Experiments 00058, The Field Experiments Website.
  3. Carbone, Enrica, 1997. "Investigation of stochastic preference theory using experimental data," Economics Letters, Elsevier, vol. 57(3), pages 305-311, December.
  4. Carbone, Enrica & Hey, John D, 2000. " Which Error Story Is Best?," Journal of Risk and Uncertainty, Springer, vol. 20(2), pages 161-76, March.
  5. John Hey, 2001. "Does Repetition Improve Consistency?," Experimental Economics, Springer, vol. 4(1), pages 5-54, June.
  6. Chris Starmer, 2000. "Developments in Non-expected Utility Theory: The Hunt for a Descriptive Theory of Choice under Risk," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 332-382, June.
  7. Loomes, G. & Moffatt, P.G. & Sugden, R., 1998. "A Microeconometric Test of Alternative Stochastic Theories of Risky Choice," University of East Anglia Discussion Papers in Economics 9806, School of Economics, University of East Anglia, Norwich, UK..
  8. Hey, John D., 1995. "Experimental investigations of errors in decision making under risk," European Economic Review, Elsevier, vol. 39(3-4), pages 633-640, April.
  9. Hey, John D & Orme, Chris, 1994. "Investigating Generalizations of Expected Utility Theory Using Experimental Data," Econometrica, Econometric Society, vol. 62(6), pages 1291-1326, November.
  10. Wu, George & Gonzalez, Richard, 1998. "Common Consequence Conditions in Decision Making under Risk," Journal of Risk and Uncertainty, Springer, vol. 16(1), pages 115-39, April.
  11. Harless, David W & Camerer, Colin F, 1994. "The Predictive Utility of Generalized Expected Utility Theories," Econometrica, Econometric Society, vol. 62(6), pages 1251-89, November.
  12. Camerer, Colin F & Ho, Teck-Hua, 1994. "Violations of the Betweenness Axiom and Nonlinearity in Probability," Journal of Risk and Uncertainty, Springer, vol. 8(2), pages 167-96, March.
  13. Neilson, William S & Stowe, Jill, 2002. " A Further Examination of Cumulative Prospect Theory Parameterizations," Journal of Risk and Uncertainty, Springer, vol. 24(1), pages 31-46, January.
  14. Chew, S H & Epstein, Larry G & Segal, U, 1991. "Mixture Symmetry and Quadratic Utility," Econometrica, Econometric Society, vol. 59(1), pages 139-63, January.
  15. Camerer, Colin F, 1989. " An Experimental Test of Several Generalized Utility Theories," Journal of Risk and Uncertainty, Springer, vol. 2(1), pages 61-104, April.
  16. Selten, Reinhard, 1991. "Properties of a measure of predictive success," Mathematical Social Sciences, Elsevier, vol. 21(2), pages 153-167, April.
  17. Loomes, Graham & Sugden, Robert, 1998. "Testing Different Stochastic Specifications of Risky Choice," Economica, London School of Economics and Political Science, vol. 65(260), pages 581-98, November.
  18. Machina, Mark J, 1985. "Stochastic Choice Functions Generated from Deterministic Preferences over Lotteries," Economic Journal, Royal Economic Society, vol. 95(379), pages 575-94, September.
  19. Hey, John D. & Carbone, Enrica, 1995. "Stochastic choice with deterministic preferences: An experimental investigation," Economics Letters, Elsevier, vol. 47(2), pages 161-167, February.
  20. Starmer, Chris, 1992. "Testing New Theories of Choice under Uncertainty Using the Common Consequence Effect," Review of Economic Studies, Wiley Blackwell, vol. 59(4), pages 813-30, October.
  21. Starmer, Chris & Sugden, Robert, 1989. " Probability and Juxtaposition Effects: An Experimental Investigation of the Common Ratio Effect," Journal of Risk and Uncertainty, Springer, vol. 2(2), pages 159-78, June.
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