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Modelling Noise and Imprecision in Individual Decisions

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  • Graham Loomes

    ()
    (University of Warwick)

  • José Luis Pinto-Prades

    ()
    (Department of Economics,Universidad Pablo de Olavide)

  • Jose Maria Abellan-Perpinan

    ()
    (U. de Murcia)

  • Eva Rodriguez-Miguez

    ()
    (U. de Vigo)

Abstract

When individuals take part in decision experiments, their answers are typically subject to some degree of noise / error / imprecision. There are different ways of modelling this stochastic element in the data, and the interpretation of the data can be altered radically, depending on the assumptions made about the stochastic specification. This paper presents the results of an experiment which gathered data of a kind that has until now been in short supply. These data strongly suggest that the 'usual' (Fechnerian) assumptions about errors are inappropriate for individual decision experiments. Moreover, they provide striking evidence that core preferences display systematic departures from transitivity which cannot be attributed to any 'error' story.

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File URL: http://www.upo.es/serv/bib/wps/econ1003.pdf
File Function: First version, 2010
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Bibliographic Info

Paper provided by Universidad Pablo de Olavide, Department of Economics in its series Working Papers with number 10.03.

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Length: 31 pages
Date of creation: Feb 2010
Date of revision:
Handle: RePEc:pab:wpaper:10.03

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Keywords: Error Imprecision Preferences Transitivity;

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  1. David J. Butler & Graham C. Loomes, 2007. "Imprecision as an Account of the Preference Reversal Phenomenon," American Economic Review, American Economic Association, American Economic Association, vol. 97(1), pages 277-297, March.
  2. Ballinger, T Parker & Wilcox, Nathaniel T, 1997. "Decisions, Error and Heterogeneity," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 107(443), pages 1090-1105, July.
  3. David Buschena & David Zilberman, 2000. "Generalized Expected Utility, Heteroscedastic Error, and Path Dependence in Risky Choice," Journal of Risk and Uncertainty, Springer, Springer, vol. 20(1), pages 67-88, January.
  4. 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, School of Economics, University of East Anglia, Norwich, UK. 9806, School of Economics, University of East Anglia, Norwich, UK..
  5. Richard Mckelvey & Thomas Palfrey, 1998. "Quantal Response Equilibria for Extensive Form Games," Experimental Economics, Springer, Springer, vol. 1(1), pages 9-41, June.
  6. Seidl, Christian, 2002. " Preference Reversal," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 16(5), pages 621-55, December.
  7. Pavlo Blavatskyy, 2007. "Stochastic expected utility theory," Journal of Risk and Uncertainty, Springer, Springer, vol. 34(3), pages 259-286, June.
  8. Graham Loomes, 2005. "Modelling the Stochastic Component of Behaviour in Experiments: Some Issues for the Interpretation of Data," Experimental Economics, Springer, Springer, vol. 8(4), pages 301-323, December.
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