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Decision makers facing uncertainty: Theory versus evidence

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

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.

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Article provided by Elsevier in its journal Journal of Economic Psychology.

Volume (Year): 31 (2010)
Issue (Month): 4 (August)
Pages: 659-675

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Handle: RePEc:eee:joepsy:v:31:y:2010:i:4:p:659-675
Contact details of provider: Web page: http://www.elsevier.com/locate/joep

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  1. Guido Tabellini, 2006. "Culture and institutions: economic development in the regions of Europe," Levine's Working Paper Archive 321307000000000241, David K. Levine.
  2. Dirk Bergemann & Karl H Schlag, 2007. "Pricing without Priors," Levine's Bibliography 122247000000001557, UCLA Department of Economics.
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  6. Siniscalchi, Marciano, 2011. "Dynamic choice under ambiguity," Theoretical Economics, Econometric Society, vol. 6(3), September.
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  19. Charles Manski, 2003. "Statistical treatment rules for heterogeneous populations," CeMMAP working papers CWP03/03, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
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