Experimental economics and small decision-making problems

Journal of Systemics, Cybernetics and Informatics, 2008

This paper provides an empirical and experimental analysis of individual decision making in small decision-making problems with a series of laboratory experiments. Two experimental treatments with binary small decision-making problems are implemented: (1) the search treatment ...

The Economic Journal, 1999

The GENEVA Papers on Risk and Insurance-Theory, 2002

Following a brief review of the main experimental work into the economics of risk and uncertainty, both static and dynamic, this paper reports the results of an experiment testing one of the key assumptions of the theory of dynamic economic behaviour -that people have a plan and implement it. Using a unique design which enables the plan (if one exists) to be revealed by the first move, the experiment was implemented via the Internet on a subset of the University of Tilburg's ongoing family expenditure survey panel. The advantages of using such a set of subjects for the experiment are twofold: the demographic characteristics of the set are known and therefore demographic inferences can be made; the representativeness of the set is known and therefore inferences about populations can be made. The results suggest that at least 36% of the subjects had behaviour inconsistent with the hypothesis under test: that people formulate plans and then implement them. Interestingly demographic variables are unable to explain the consistency or inconsistency of individuals. One conclusion is that subjects simply make errors. An alternative conclusion, consistent with previous experimental research, is that people are unable to predict their own future decisions. The implications for dynamic theory (particularly relating to savings and pensions decisions) are important.

Empirica, 1987

2020

This thesis uses the Prospect Theory framework to contribute in two open questions: (i) Does the hot hand belief endogenously affect individual portfolio selection?, and (ii) Is there a limit to the effect of aggregation on Myopic Loss Aversion (MLA)? We ran lab experiments with undergraduate students at two Brazilian universities to address these two questions. In the second chapter, we test how the hot hand self-belief affects the individual portfolio selection in the presence of Loss Aversion (LA). Our experimental design used portfolio decisions considering random prices that were obtained from a predefined system so that the hot hand belief was defined as a wrong expectation about the price formation, and estimated considering how the investor evaluated both information about previous prices and investment performances. The portfolio dimension and the risk-return patterns were defined to attenuate confusion about the diversity of the asset price distributions, while the price formation aimed to attenuate familiarity about the development of prices. The results show that the propensity to buy is, in part, positively correlated with the price changes. More frequency of success in the investments made the hot hand show up in data, but the loss-averse investor profile dominated the portfolio management when the participant faced persistent negative price trends, making the hot hand effect fade away. In the third chapter, we got a representative sample for the experimental design proposed by Schoti (2012) in order to evaluate investors facing the frequency of feedback and the flexibility of choice smaller than what was provided to participants in the study conducted by Gneezy and Potters (1997). Schoti's study proposed a new treatment group in which participants played the rounds under more aggregated conditions to receive extremely low frequency of information, further limiting MLA. Our results support Schoti's hypothesis showing that MLA is positively related to the information frequency and the flexibility of choice, but also that the effect of these variables on the myopia is decreasing. Participants in our experiment exhibited less risk aversion and bet more significant amounts when they faced more limited feedback and choices. However, doubling the feedback and choice restrictions did not produce twice less myopia, suggesting that the effect is not linear.

Interfaces, 2002

2017

This thesis contains three self-contained articles, each studying decisions made under incomplete information among buyers with the help of experiments. While Chapter 2 and Chapter 3 study the interaction of buyers and sellers in different market settings, Chapter 4, which is joint work with Henrik Orzen, focuses on consumer decision making. Chapter 2 analyzes markets for horizontally differentiated credence goods in which competing sellers have the option to give buyers non-verifiable recommendations. In Chapter 3 I investigate the influence of better price information and the possibility to communicate among buyers on prices and welfare in posted offer markets with capacity constrained sellers. Chapter 4 seeks to identify decision making heuristics used by buyers in an environment with very limited information both from a one-shot perspective and over time.

1994

Subjects played strategically similar 4 � 4 and 6 � 6 constant sum games under varying payoff scales. Substantial divergences from equilibrium predictions were exhibited. The dynamic pattern of play is best explained by a stimulus learning model whereby players allocate weight to different actions according to their relative Ž time average. payoff experience in past plays. The results do not provide much support for the hypothesis that players select best responses to beliefs about opponent play based on observed choice frequencies in past plays, modified by random errors or preference shocks. Journal of Economic Literature Classification

2006

Behavioral economics aims to provide more realistic psychological foundations for economic models. Experimental methods can contribute to this effort by providing the ability to identify causal processes and motivations that can be confounded in field settings. The essays in this dissertation examine three critical issues in behavioral economics using lab and field experiments. The first two essays examine two core elements of economic rationality; expected utility theory and Bayesian updating. The essays consider, respectively, ambiguity, and information cascades, in environments in which limitations of the theories can be studied. The third essay examines a contracting game in which other-regarding preferences are explicitly considered. Decision making under ambiguity has been of interest to economists since the 1920's (Knight (1921), Keynes (1921)). It has received renewed attention due to the work

The handbook of experimental economics, 2008