Tuesday, 22 March, 2016

14:00 | Defense - PhD

Alexandra Prokosheva: “Essays on Decision Making under Uncertainty”

Dissertation Committee:
Andreas Ortmann (chair)
Fabio Michelucci
Ondřej Rydval

Abstract:

This thesis examines several aspects of decision making under uncertainty.

In the first chapter, coauthored with Ondřej Rydval, Andreas Ortmann, and Ralph Hertwig, we replicate three pricing tasks of Gneezy, List, and Wu (2006) for which they document the so-called uncertainty effect, namely, that people value a binary lottery over non-monetary outcomes less than other people value the lottery's worse outcome. While the authors implemented a verbal lottery description, we use a physical lottery format, which makes misinterpretation of the lottery structure highly unlikely. We also provide subjects with complete information about the goods they are to value (book gift certificates and one-year deferred payments). Contrary to Gneezy, List, and Wu (2006), we observe for all three pricing tasks that subjects' willingness to pay for the lottery is significantly higher than other subjects' willingness to pay for the lottery's worse outcome.

In the second chapter, I investigate the relationship between attitudes towards ambiguity and the ability to reduce compound risks. The evidence from an experiment on adolescents shows that patterns identified in the previous literature are susceptible to experimental implementation and the characteristics of the subjects. Cognitive skills and the way lotteries are presented affect reduction of compound risks differently to ambiguity neutrality. My results suggest that theoretical studies which model ambiguity preferences by relaxing the assumption of compound risk reduction should be viewed with caution.

In the third chapter, I review recent experimental studies on decision making under ambiguity and identify the main determinants related to intrinsic characteristics of a subject (static contexts) and related to interaction between a subject and ambiguous reality (dynamic contexts). Significantly fewer papers address robustness under dynamic contexts. Moreover, several studies report contradictory results and shifts to ambiguity-neutrality under certain conditions. I suggest that, if we aim to predict behavior under ambiguity, then we ought to focus on robustness of attitudes toward ambiguity, specifically in dynamic contexts.


Full Text: “Essays on Decision Making under Uncertainty” by Alexandra Prokosheva