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A Test of the Principle of Optimality

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  • Enrica Carbone
  • John Hey

Abstract

This paper reports on an experimental test of the Principle of Optimality in dynamic decision problems. This Principle, which states that the decision-maker should always choose the optimal decision at each stage of the decision problem, conditional on behaving optimally thereafter, underlies many theories of optimal dynamic decision making, but is normally difficult to test empirically without knowledge of the decision-maker's preference function. In the experiment reported here we use a new experimental procedure to get round this difficulty, which also enables us to shed some light on the decision process that the decision-maker is using if he or she is not using the Principle of Optimality - which appears to be the case in our experiments.

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File URL: http://www.york.ac.uk/media/economics/documents/discussionpapers/1999/9909.pdf
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Paper provided by Department of Economics, University of York in its series Discussion Papers with number 99/9.

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Handle: RePEc:yor:yorken:99/9

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Postal: Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom
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Web page: http://www.york.ac.uk/economics/
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  1. Hey, John D, 1993. "Dynamic Decision Making under Uncertainty: An Experimental Study of the Dynamic Competitive Firm," Oxford Economic Papers, Oxford University Press, vol. 45(1), pages 58-82, January.
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Cited by:
  1. John D. Hey, 2005. "Do People (Want To) Plan?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 52(1), pages 122-138, 02.
  2. Levesque, Moren & Schade, Christian, 2005. "Intuitive optimizing: experimental findings on time allocation decisions with newly formed ventures," Journal of Business Venturing, Elsevier, vol. 20(3), pages 313-342, May.
  3. Amit Kothiyal & Vitalie Spinu & Peter Wakker, 2014. "An experimental test of prospect theory for predicting choice under ambiguity," Journal of Risk and Uncertainty, Springer, vol. 48(1), pages 1-17, February.
  4. Theodoros M. Diasakos, . "Complexity and Bounded Rationality in Individual Decision Problems," Discussion Paper Series, Department of Economics 201314, Department of Economics, University of St. Andrews.
  5. Muller, Wieland, 2001. "Strategies, heuristics, and the relevance of risk-aversion in a dynamic decision problem," Journal of Economic Psychology, Elsevier, vol. 22(4), pages 493-522, August.
  6. John Hey & Julia Knoll, 2006. "How Far Ahead Do People Plan?," Discussion Papers 06/17, Department of Economics, University of York.

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