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The Thrill of Gradual Learning

Author

Listed:
  • Faruk R. Gul

    (Princeton University)

  • Paulo Natenzon

    (Washington University in St. Louis)

  • Erkut Y. Ozbay

    (University of Maryland)

  • Wolfgang Pesendorfer

    (Princeton University)

Abstract

We report on an experiment that shows subjects prefer a gradual resolution of uncertainty when information about winning yields decisive bad news but inconclusive good news. This behavior is difficult to reconcile with existing theories of choice under uncertainty, including the Kreps-Porteus model. We show how the behavioral patterns uncovered by our experiment can be understood as arising from subjects’ special emphasis on their best (peak) and worst (trough) experiences along the realized path of uncertainty.

Suggested Citation

  • Faruk R. Gul & Paulo Natenzon & Erkut Y. Ozbay & Wolfgang Pesendorfer, 2020. "The Thrill of Gradual Learning," Working Papers 2020-8, Princeton University. Economics Department..
    • Handle: RePEc:pri:econom:2020-8
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    More about this item

    Keywords

    uncertainty;

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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