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Comparing Theories: What are we Looking For?

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  • John D. Hey

Abstract

Two recent papers, Harless and Camerer(1994) and Hey and Orme(1994) were both addressed to the same question: which is the 'best' theory of decision making under risk? The two papers shared a common concern: the appropriate trade-off between the descriptive accuracy of a theory and the predictive parsimony of that theory. In other respects, however, the two papers differed markedly: first in their treatment of the stochastic specification underlying the data generating process; second, and more importantly, in their interpretation of the question posed. This current paper tackles these two issues; first, trying to resolve the issue of the correct stochastic specification; second, by clarifying what economists might mean by a `best' theory. The paper provides a general framework for answering such questions, and illustrates the application of this framework through two experiments aimed at answering the question: `which is the best theory of decision making under risk?'.

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  • John D. Hey, "undated". "Comparing Theories: What are we Looking For?," Discussion Papers 99/18, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:99/18
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    File URL: https://www.york.ac.uk/media/economics/documents/discussionpapers/1999/9918.pdf
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    References listed on IDEAS

    as
    1. Harless, David W & Camerer, Colin F, 1994. "The Predictive Utility of Generalized Expected Utility Theories," Econometrica, Econometric Society, vol. 62(6), pages 1251-1289, November.
    2. John D. Hey, 2018. "Experimental investigations of errors in decision making under risk," World Scientific Book Chapters, in: Experiments in Economics Decision Making and Markets, chapter 17, pages 381-388, World Scientific Publishing Co. Pte. Ltd..
    3. Enrica Carbone & John D. Hey, 2018. "Discriminating between Preference Functionals: A Preliminary Monte Carlo Study," World Scientific Book Chapters, in: Experiments in Economics Decision Making and Markets, chapter 4, pages 99-118, World Scientific Publishing Co. Pte. Ltd..
    4. Hey, John D. & Carbone, Enrica, 1995. "Stochastic choice with deterministic preferences: An experimental investigation," Economics Letters, Elsevier, vol. 47(2), pages 161-167, February.
    5. Selten, Reinhard, 1991. "Properties of a measure of predictive success," Mathematical Social Sciences, Elsevier, vol. 21(2), pages 153-167, April.
    6. John D. Hey & Chris Orme, 2018. "Investigating Generalizations Of Expected Utility Theory Using Experimental Data," World Scientific Book Chapters, in: Experiments in Economics Decision Making and Markets, chapter 3, pages 63-98, World Scientific Publishing Co. Pte. Ltd..
    7. John Hey & Enrica Carbone, "undated". "Which Error Theory is Best?," Discussion Papers 99/31, Department of Economics, University of York.
    8. Carbone, Enrica, 1997. "Investigation of stochastic preference theory using experimental data," Economics Letters, Elsevier, vol. 57(3), pages 305-311, December.
    9. Carbone, Enrica, 1997. "Discriminating between Preference Functionals: A Monte Carlo Study," Journal of Risk and Uncertainty, Springer, vol. 15(1), pages 29-54, October.
    10. Hey, John D., 1998. "An application of Selten's measure of predictive success," Mathematical Social Sciences, Elsevier, vol. 35(1), pages 1-15, January.
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    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General

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