The Descriptive and Predictive Adequacy of Theories of Decision Making Under Uncertainty/Ambiguity
AbstractIn this paper we examine the performance of theories of decision making under uncertainty/ambiguity from the perspective of their descriptive and predictive power, taking into account the relative parsimony of the various theories. To this end, we employ an innovative experimental design which enables us to reproduce ambiguity in the laboratory in a transparent and non-probabilistic way. We find that judging theories on the basis of their theoretical appeal, or on their ability to do well in testing contexts, is not the same as judging them on the basis of their explanatory and predictive power. We also find that the more elegant theoretical models do not perform as well as simple rules of thumb.
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Bibliographic InfoPaper provided by Department of Economics, University of York in its series Discussion Papers with number 08/04.
Date of creation: Apr 2008
Date of revision:
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Postal: Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom
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More information through EDIRC
Ambiguity; Bingo Blower; Choquet Expected Utility; Decision Field Theory; Decision Making; Expected Utility; Hurwicz Criterion; (Gilboa and Schmeidler) MaxMin EU; (Gilboa and Schmeidler) MaxMax EU; (Ghirardato) Alpha-Model; MaxMin; MaxMax; Minimum Regret; Prospect Theory; Uncertainty.;
Other versions of this item:
- John Hey & Gianna Lotito & Anna Maffioletti, 2010. "The descriptive and predictive adequacy of theories of decision making under uncertainty/ambiguity," Journal of Risk and Uncertainty, Springer, vol. 41(2), pages 81-111, October.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-04-15 (All new papers)
- NEP-CBA-2008-04-15 (Central Banking)
- NEP-CBE-2008-04-15 (Cognitive & Behavioural Economics)
- NEP-EVO-2008-04-15 (Evolutionary Economics)
- NEP-EXP-2008-04-15 (Experimental Economics)
- NEP-HPE-2008-04-15 (History & Philosophy of Economics)
- NEP-UPT-2008-04-15 (Utility Models & Prospect Theory)
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