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Why We Should Not Be Silent About Noise

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Author Info
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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Publisher Info
Article provided by Springer in its journal Experimental Economics.

Volume (Year): 8 (2005)
Issue (Month): 4 (December)
Pages: 325-345
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
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

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

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Glenn W. Harrison & John A. List, 2004. "Field Experiments," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1009-1055, December. [Downloadable!] (restricted)
  2. Carbone, Enrica, 1997. "Investigation of stochastic preference theory using experimental data," Economics Letters, Elsevier, vol. 57(3), pages 305-311, December. [Downloadable!] (restricted)
  3. 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.
  4. Chew, S H & Epstein, Larry G & Segal, U, 1991. "Mixture Symmetry and Quadratic Utility," Econometrica, Econometric Society, vol. 59(1), pages 139-63, January. [Downloadable!] (restricted)
  5. 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. [Downloadable!] (restricted)
  6. 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. [Downloadable!] (restricted)
  7. 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. [Downloadable!] (restricted)
  8. John Hey, 2001. "Does Repetition Improve Consistency?," Experimental Economics, Springer, vol. 4(1), pages 5-54, June. [Downloadable!] (restricted)
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  9. 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. [Downloadable!] (restricted)
  10. Ballinger, T Parker & Wilcox, Nathaniel T, 1997. "Decisions, Error and Heterogeneity," Economic Journal, Royal Economic Society, vol. 107(443), pages 1090-1105, July. [Downloadable!] (restricted)
  11. 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. [Downloadable!] (restricted)
  12. Loomes, Graham & Moffatt, Peter G & Sugden, Robert, 2002. " A Microeconometric Test of Alternative Stochastic Theories of Risky Choice," Journal of Risk and Uncertainty, Springer, vol. 24(2), pages 103-30, March. [Downloadable!] (restricted)
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  13. Carbone, Enrica & Hey, John D, 2000. " Which Error Story Is Best?," Journal of Risk and Uncertainty, Springer, vol. 20(2), pages 161-76, March. [Downloadable!] (restricted)
  14. 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. [Downloadable!] (restricted)
  15. Selten, Reinhard, 1991. "Properties of a measure of predictive success," Mathematical Social Sciences, Elsevier, vol. 21(2), pages 153-167, April. [Downloadable!] (restricted)
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  16. 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. [Downloadable!] (restricted)
  17. 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. [Downloadable!] (restricted)
  18. Hey, John D. & Carbone, Enrica, 1995. "Stochastic choice with deterministic preferences: An experimental investigation," Economics Letters, Elsevier, vol. 47(2), pages 161-167, February. [Downloadable!] (restricted)
  19. Starmer, Chris, 1992. "Testing New Theories of Choice under Uncertainty Using the Common Consequence Effect," Review of Economic Studies, Blackwell Publishing, vol. 59(4), pages 813-30, October. [Downloadable!] (restricted)
  20. 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.
  21. 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.
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Klaus Moeltner & James J. Murphy & John K. Stranlund & Maria Alejandra Velez, 2007. "Processing Data from Social Dilemma Experiments: A Bayesian Comparison of Parametric Estimators," Working Papers 07-013, University of Nevada, Reno, Department of Economics & University of Nevada, Reno , Department of Resource Economics. [Downloadable!]
  2. Glenn W Harrison, 2008. "Neuroeconomics: A Critical Reconsideration," Levine's Working Paper Archive 122247000000001915, David K. Levine. [Downloadable!]
  3. Booij, Adam S. & van Praag, Bernard M. S. & van de Kuilen, Gijs, 2009. "A Parametric Analysis of Prospect Theory's Functionals for the General Population," IZA Discussion Papers 4117, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  4. Glenn Harrison, 2007. "House money effects in public good experiments: Comment," Experimental Economics, Springer, vol. 10(4), pages 429-437, December. [Downloadable!] (restricted)
  5. John Hey & Gianna Lotito, 2009. "Naive, resolute or sophisticated? A study of dynamic decision making," Journal of Risk and Uncertainty, Springer, vol. 38(1), pages 1-25, February. [Downloadable!] (restricted)
    Other versions:
  6. Pavlo Blavatskyy, 2007. "Stochastic expected utility theory," Journal of Risk and Uncertainty, Springer, vol. 34(3), pages 259-286, June. [Downloadable!] (restricted)
  7. Sarah Jacobson & Ragan Petrie, 2009. "Learning from mistakes: What do inconsistent choices over risk tell us?," Journal of Risk and Uncertainty, Springer, vol. 38(2), pages 143-158, April. [Downloadable!] (restricted)
  8. Jacob Goeree & Charles Holt & Thomas Palfrey, 2005. "Regular Quantal Response Equilibrium," Experimental Economics, Springer, vol. 8(4), pages 347-367, December. [Downloadable!] (restricted)
    Other versions:
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