Dynamic Decision Making under Ambiguity:an Experimental Investigation

Georgalos, Konstantinos (2021) Dynamic Decision Making under Ambiguity:an Experimental Investigation. Games and Economic Behavior, 127. pp. 28-46. ISSN 0899-8256

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Abstract

Neoclassical economic theory assumes that whenever agents tackle dynamic decisions under ambiguity, preferences are represented by the Subjective Expected Utility (SEU) model and prior beliefs are updated according to Bayes rule, upon the arrival of partial information. Nevertheless, when one considers non-neutral ambiguity attitudes, either the axiom of dynamic consistency or of consequentialism should be relaxed. Using data from an economic experiment on dynamic choice under ambiguity, we study which of the two rationality axioms people violate, along with the question of whether this violation is part of a conscious planning strategy or not. The combination of the two, allows us to classify non-SEU subjects to three behavioural types: resolute, naïve and sophisticated. The hypothesis of Bayesian updating is rejected for more than half of the experimental population. For ambiguity non-neutral subjects, we find that the majority are sophisticated, a few are naïve and very few are resolute.

Item Type:
Journal Article
Journal or Publication Title:
Games and Economic Behavior
Additional Information:
This is the author’s version of a work that was accepted for publication in Games and Economic Behavior. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Games and Economic Behavior, 127, 2021 DOI: 10.1016/j.geb.2021.02.002
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2000/2002
Subjects:
ID Code:
151740
Deposited By:
Deposited On:
15 Feb 2021 12:20
Refereed?:
Yes
Published?:
Published
Last Modified:
27 Jul 2021 06:10