EXPERIMENTAL INVESTIGATIONS OF ERRORS IN DECISION-MAKING UNDER RISK

Many, if not all, of the recent theories of decision making under risk, that have been developed in the light of experimentally observed violations of Expected Utility theory, are essentially deterministic in nature, yet it is clear that actual decision making contains a random or error component. This paper surveys the assumptions that have been employed in previous analyses of such experimental data, and tries to find better explanations (both from an economic and an econometrics point of view), of such errors. Hopefully, such work will lead to a unified theory, in which the stochastic component is an integral part.