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Simulation Analysis for Choice of Binary Lotteries

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  • Ichiro Nishizaki
  • Tomohiro Hayashida

Abstract

In this paper, we discuss the development of a simulation system with artificial autonomous adaptive agents that select one out of a given pair of binary lotteries, as represented by probability distributions over two outcomes. The agent’s decisions are made by a learning classifier system, and after classifying the information of a given pair of binary lotteries, the agent chooses one of them. The condition part of a classifier consists of two types of conditions: the conditions identifying probabilities and payoffs of a given pair of binary lotteries, and the conditions identifying characteristics of the lotteries known by several models that describe the behavioral regularities of choices under risk. We compare the result of the simulation with that of the experiment by Selten et al. (Theory Decis 46:211–249, 1999 ), and demonstrate the similarity between them. From the similarity, we consider a mechanism of human choices under risk. Finally, we examine the possibility of controlling a subject’s preference with respect to risky events using the lottery ticket procedure in laboratory experiments. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Ichiro Nishizaki & Tomohiro Hayashida, 2013. "Simulation Analysis for Choice of Binary Lotteries," Computational Economics, Springer;Society for Computational Economics, vol. 41(2), pages 195-211, February.
    • Handle: RePEc:kap:compec:v:41:y:2013:i:2:p:195-211
    DOI: 10.1007/s10614-012-9348-5
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    References listed on IDEAS

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    1. Reinhard Selten & Abdolkarim Sadrieh & Klaus Abbink, 1999. "Money Does Not Induce Risk Neutral Behavior, but Binary Lotteries Do even Worse," Theory and Decision, Springer, vol. 46(3), pages 213-252, June.
    2. Walker, James M & Smith, Vernon L & Cox, James C, 1990. "Inducing Risk-Neutral Preferences: An Examination in a Controlled Market Environment," Journal of Risk and Uncertainty, Springer, vol. 3(1), pages 5-24, March.
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    4. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    5. Carlin, Paul S., 1992. "Violations of the reduction and independence axioms in Allais-type and common-ratio effect experiments," Journal of Economic Behavior & Organization, Elsevier, vol. 19(2), pages 213-235, October.
    6. Roth, Alvin E & Schoumaker, Francoise, 1983. "Expectations and Reputations in Bargaining: An Experimental Study," American Economic Review, American Economic Association, vol. 73(3), pages 362-372, June.
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