Advanced Search
MyIDEAS: Login to save this paper or follow this series

Expectation Formation in an Evolving Game of Uncertainty: Theory and New Experimental Evidence

Contents:

Author Info

  • Gigi Foster
  • Paul Frijters
  • Markus Schaffner
  • Benno Torgler

Abstract

We examine the nature of stated subjective probabilities in a complex, evolving context in which true event probabilities are not within subjects' explicit information set. Speci cally, we collect information on subjective expectations in a car race wherein participants must bet on a particular car but cannot influence the odds of winning once the race begins. In our setup, the actual probability of the good outcome (a win) can be determined based on computer simulations from any point in the process. We compare this actual probability to the subjective probability participants provide at three di erent points in each of 6 races. We fi nd that the S-shaped curve relating subjective to actual probabilities found in prior research when participants have direct access to actual probabilities also emerges in our much more complex situation, and that there is only a limited degree of learning through repeated play. We show that the model in the S-shaped function family that provides the best fi t to our data is Prelec's (1998) conditional invariant model.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://external-apps.qut.edu.au/business/documents/QuBEWorkingPapers/2013/Expectation%20Formation%20Foster%20et%20al.pdf
Download Restriction: no

Bibliographic Info

Paper provided by QUT Business School in its series QuBE Working Papers with number 022.

as in new window
Length:
Date of creation: 01 Nov 2013
Date of revision:
Handle: RePEc:qut:qubewp:wp022

Contact details of provider:
Web page: http://www.qut.edu.au/research/research-projects/queensland-behavioural-economics-group-qube

Related research

Keywords: behavioural economics; expected utility theory; experiments; expectations; probabilities;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Weitzman, Martin L., 1965. "Utility Analysis and Group Behavior: An Empirical Study," Scholarly Articles 3710799, Harvard University Department of Economics.
  2. George Wu & Richard Gonzalez, 1996. "Curvature of the Probability Weighting Function," Management Science, INFORMS, vol. 42(12), pages 1676-1690, December.
  3. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  4. Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, vol. 55(1), pages 95-115, January.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:qut:qubewp:wp022. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dipa Sarkar).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.