Strategies, heuristics and the relevance of risk aversion in a dynamic decision problem
AbstractIn this paper I consider a complex decision problem where subjects have to cope with a time horizon of uncertain duration and must update their termination probabilities which depend on stochastic events during life. First I describe how economic theory suggests to solve the decision problem. But since real decision makers can hardly be expected to behave according to the theoretical solution in the problem at hand, I describe several heuristics or rules of thumb and investigate their theoretical performance. Then observed behavior and the way how people tackled the problem is described. In the second part of the paper I discuss how much of the data can be explained by assuming that experimental subjects are risk averse. --
Download InfoIf 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.
Bibliographic InfoPaper provided by Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes in its series SFB 373 Discussion Papers with number 1999,61.
Date of creation: 1999
Date of revision:
Other versions of this item:
- 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.
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.:
- Hey, John D, 1983. "Whither Uncertainty?," Economic Journal, Royal Economic Society, vol. 93(369a), pages 130-39, Supplemen.
- Huck, Steffen & Weizsacker, Georg, 1999. "Risk, complexity, and deviations from expected-value maximization: Results of a lottery choice experiment," Journal of Economic Psychology, Elsevier, vol. 20(6), pages 699-715, December.
- Enrica Carbone & John Hey, 2001.
"A Test of the Principle of Optimality,"
Theory and Decision,
Springer, vol. 50(3), pages 263-281, May.
- Eric J. Johnson & John W. Payne, 1985. "Effort and Accuracy in Choice," Management Science, INFORMS, vol. 31(4), pages 395-414, April.
- Vital Anderhub & Werner GÃ¤uth & Wieland MÃ¤uller & Martin Strobel, 2000. "An Experimental Analysis of Intertemporal Allocation Behavior," Experimental Economics, Springer, vol. 3(2), pages 137-152, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).
If references are entirely missing, you can add them using this form.