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Decision makers facing uncertainty: Theory versus evidence

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  • Giordani, Paolo E.
  • Schlag, Karl H.
  • Zwart, Sanne

Abstract

This paper aims at assessing cultural differences in uncertainty attitude across Europe. We select questions from the European Values Survey (EVS) capturing salient features of uncertain scenarios ("safe versus uncertain", "freedom of choice" and "reduction of uncertainty"), and formalize these questions through simple decision-theoretic problems. We then consider three competing normative models of choice under uncertainty (subjective expected utility (SEU), maximin utility and minimax regret), and analyze how they behave when facing each decision problem. We obtain theoretical predictions and, using the EVS dataset, we test them via latent class analysis to estimate the distribution of these behaviors across EU15. We find a larger proportion of SEU maximizers (Bayesians) in northern countries than in southern countries. The opposite is true for maximin utility behavior. Only a few are consistent with minimax regret behavior.

Suggested Citation

  • Giordani, Paolo E. & Schlag, Karl H. & Zwart, Sanne, 2010. "Decision makers facing uncertainty: Theory versus evidence," Journal of Economic Psychology, Elsevier, vol. 31(4), pages 659-675, August.
  • Handle: RePEc:eee:joepsy:v:31:y:2010:i:4:p:659-675
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    References listed on IDEAS

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    Cited by:

    1. Alpaslan Akay & Peter Martinsson & Haileselassie Medhin & Stefan Trautmann, 2012. "Attitudes toward uncertainty among the poor: an experiment in rural Ethiopia," Theory and Decision, Springer, vol. 73(3), pages 453-464, September.

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