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A theory of robust experiments for choice under uncertainty

Author

Listed:
  • Grant, S.
  • Kline, J.
  • Meneghel, I.
  • Quiggin, J.
  • Tourky, R.

Abstract

Thought experiments are commonly used in the theory of behavior in the presence of risk and uncertainty to test the plausibility of proposed axiomatic postulates. The prototypical examples of the former are the Allais experiments and of the latter are the Ellsberg experiments. Although the lotteries from the former have objectively specified probabilities, the participants in both kinds of experiments may be susceptible to small deviations in their subjective beliefs. These may result from a variety of factors that are difficult to check in an experimental setting: including deviations in the understanding and trust regarding the experiment, its instructions and its method. Intuitively, an experiment is robust if it is tolerant to small deviations in subjective beliefs in models that are in an appropriate way close to the analyst's model. The contribution of this paper lies in the formalization of these ideas.

Suggested Citation

  • Grant, S. & Kline, J. & Meneghel, I. & Quiggin, J. & Tourky, R., 2016. "A theory of robust experiments for choice under uncertainty," Journal of Economic Theory, Elsevier, vol. 165(C), pages 124-151.
  • Handle: RePEc:eee:jetheo:v:165:y:2016:i:c:p:124-151
    DOI: 10.1016/j.jet.2016.04.013
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    References listed on IDEAS

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    1. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-955, December.
    2. Eichberger, Jurgen & Grant, Simon & Kelsey, David, 2007. "Updating Choquet beliefs," Journal of Mathematical Economics, Elsevier, vol. 43(7-8), pages 888-899, September.
    3. Loomes, Graham & Sugden, Robert, 1982. "Regret Theory: An Alternative Theory of Rational Choice under Uncertainty," Economic Journal, Royal Economic Society, vol. 92(368), pages 805-824, December.
    4. Daniel Ellsberg, 1961. "Risk, Ambiguity, and the Savage Axioms," The Quarterly Journal of Economics, Oxford University Press, vol. 75(4), pages 643-669.
    5. Mark J. Machina, 2009. "Risk, Ambiguity, and the Rank-Dependence Axioms," American Economic Review, American Economic Association, vol. 99(1), pages 385-392, March.
    6. Howard Raiffa, 1961. "Risk, Ambiguity, and the Savage Axioms: Comment," The Quarterly Journal of Economics, Oxford University Press, vol. 75(4), pages 690-694.
    7. Yoram Halevy, 2007. "Ellsberg Revisited: An Experimental Study," Econometrica, Econometric Society, vol. 75(2), pages 503-536, March.
    8. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-587, May.
    9. Harrison, Glenn W, 1994. "Expected Utility Theory and the Experimentalists," Empirical Economics, Springer, vol. 19(2), pages 223-253.
    10. Holt, Charles A, 1986. "Preference Reversals and the Independence Axiom," American Economic Review, American Economic Association, vol. 76(3), pages 508-515, June.
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    More about this item

    Keywords

    Choice experiments; Robust tests; Non-expected utility; Generalized mean utility;

    JEL classification:

    • 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

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