Assessing Multiple Prior Models of Behaviour under Ambiguity
AbstractThe recent spate of theoretical models of behaviour under ambiguity can be partitioned into two sets: those involving multiple priors (in which the probabilities of the various events are not known but probabilities can be attached to the various possible values for the probabilities) and those not involving multiple priors. This paper concentrates on the first set and provides an experimental investigation into recently proposed theories. Using an appropriate experimental interface, in which the probabilities on the various possibilities are explicitly stated, we examine the fitted and predictive power of the various theories. We first estimate subject-by-subject, and then we estimate and predict using a mixture model over the contending theories. The individual estimates suggest that 24% of our 149 subjects have behaviour consistent with Expected Utility, 56% with the Smooth Model (of Klibanoff et al, 2005), 11% with Rank Dependent Expected Utility and 9% with the Alpha Model (of Ghirardato et al 2004); these figures are close to the mixing proportions obtained from the mixture estimates. If we classify our subjects through the posterior probabilities (given all the evidence) of each of them being of the various types: using the estimates we get 25%, 50%, 20% and 5% (for EU, Smooth, Rank Dependent and Alpha); while using the predictions 22%, 53%, 22% and 3%. Interestingly the Smooth model seems to fare the best.
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Bibliographic InfoPaper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2011-068.
Date of creation: 2011
Date of revision:
Alpha Model; Ambiguity; Expected Utility; Mixture Models; Rank Dependent Expected Utility; Smooth Model;
Other versions of this item:
- Anna Conte & John Hey, 2013. "Assessing multiple prior models of behaviour under ambiguity," Journal of Risk and Uncertainty, Springer, vol. 46(2), pages 113-132, April.
- Anna Conte & John D. Hey, 2012. "Assessing Multiple Prior Models of Behaviour under Ambiguity," Discussion Papers 12/01, Department of Economics, University of York.
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-21 (All new papers)
- NEP-CBE-2012-03-21 (Cognitive & Behavioural Economics)
- NEP-EXP-2012-03-21 (Experimental Economics)
- NEP-FOR-2012-03-21 (Forecasting)
- NEP-UPT-2012-03-21 (Utility Models & Prospect Theory)
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