The stochastic component in choice and regression to the mean
García-Gallego, Aurora, Georgantzís, N. (Nikolaos), Navarro-Martínez, Daniel and Sabater-Grande, Gerardo. (2011) The stochastic component in choice and regression to the mean. Theory and Decision, Vol.71 (No.2). pp. 251-267. ISSN 0040-5833Full text not available from this repository.
Official URL: http://dx.doi.org/10.1007/s11238-010-9223-6
In this article, we illustrate experimentally an important consequence of the stochastic component in choice behaviour which has not been acknowledged so far. Namely, its potential to produce 'regression to the mean' (RTM) effects. We employ a novel approach to individual choice under risk, based on repeated multiple-lottery choices (i.e. choices among many lotteries), to show how the high degree of stochastic variability present in individual decisions can distort crucially certain results through RTM effects. We demonstrate the point in the context of a social comparison experiment.
|Item Type:||Journal Article|
|Subjects:||B Philosophy. Psychology. Religion > BF Psychology
Q Science > QA Mathematics
|Divisions:||Faculty of Science > Psychology|
|Library of Congress Subject Headings (LCSH):||Choice (Psychology), Regression analysis, Stochastic analysis, Stochastic processes, Decision making, Decision making -- Mathematical models|
|Journal or Publication Title:||Theory and Decision|
|Page Range:||pp. 251-267|
|Funder:||Spain. Ministerio de Ciencia e Innovación (MCINN), Fundación Bancaja (Spain), Andalusia (Spain)|
|Grant number:||ECO2008-04636/ECON (MCINN), P1 1B2007-14 (FB), P07-SEJ-03155 (Andalusia)|
|References:||Ballinger, T. P.,Wilcox, N. (1997). Decisions, error and heterogeneity. Economic Journal, 107, 1090–1105. Barnett, A. G., van der Pols, J. C., & Dobson, A. J. (2005). Regression to the mean: What it is and how to deal with it. International Journal of Epidemiology, 34, 215–220. Becker, G. M., DeGroot, M. H., & Marschak, J. (1963). Stochastic models of choice behavior. Behavioral Science, 8, 41–55. Blavatskyy, P. R. (2006). Violations of betweenness or random errors?. Economics Letters, 91, 34–38. Blavatskyy, P. R. (2007). Stochastic expected utility theory. Journal of Risk and Uncertainty, 34, 259–286. Block, H. D., & Marschak, J., et al. (1960). Random orderings and stochastic theories of response. In I. Olkin (Ed.), Contributions to probability and statistics (pp. 97–132). Stanford: Stanford University Press. Butler, D. J. (2000). Do non-expected utility choice patterns spring from hazy preferences? An experimental study of choice ‘errors’. Journal of Economic Behavior and Organization, 41, 277–297. Butler, D., & Loomes, G. (2007). Imprecision as an account of the preference reversal phenomenon. American Economic Review, 97, 277–297. Brañas-Garza, P., Georgantzís, N., & Guillén, P. (2007). Direct and indirect effects of pathological gambling on risk attitudes. Judgment and Decision Making, 2, 126–136. Brañas-Garza, P., Guillén, P., & López del Paso, R. (2008). Math skills and risk attitudes. Economics Letters, 99, 332–336. Camacho-Cuena, E., Garcia-Gallego, A., Georgantzis, N., & Sabater-Grande, G. (2003). An experimental test of response consistency in contingent valuation. Ecological Economics, 47, 167–182. Camacho-Cuena, E., Garcia-Gallego, A., Georgantzis, N., & Sabater-Grande, G. (2004). An experimental validation of hypothetical WTP for a recyclable product. Environmental and Resource Economics, 27, 313–335. Camerer, C. F. (1989). An experimental test of several generalized utility theories. Journal of Risk and Uncertainty, 2, 61–104. Camerer, C. F. (1995). Individual decision making. In A. E. Roth & J. H. Kagel (Eds.), The handbook of experimental economics (pp. 587–703). Princeton: Princeton University Press. Chesher, A. (1997). Non-Normal variation and regression to the mean. Statistical Methods in Medical Research, 6, 147–166. Cubitt, R. P., Starmer, C., & Sugden, R. (1998). On the validity of the random lottery incentive system. Experimental Economics, 1, 115–131. Fama, E. F., & French, K. R. (2000). Forecasting profitability and earnings. The Journal of Business, 73, 161–175. Friedman, M. (1992). Do old fallacies ever die?. Journal of Economic Literature, 30, 2129–2132. Galton, F. (1886). Regression towards mediocrity in hereditary stature. Journal of the Anthropological Institute, 15, 246–263. Harless, D. W., & Camerer, C. F. (1994). The predictive utility of generalized expected utility theories. Econometrica, 62, 1251–1289. Hey, J. D., & Orme, C. (1994). Investigating generalizations of expected utility theory using experimental data. Econometrica, 62, 1291–1326. Holt, C. A. (1986). Preference reversals and the independence axiom. American Economic Review, 76, 508–515. Hotelling, H. (1933). Review of the triumph of mediocrity in business, by Horace Secrist. Journal of the American Statistical Association, 28, 463–465. Kahneman, D. (2003). Autobiography. In T. Frängsmyr (Ed.), Les Prix Nobel. The Nobel Prizes 2002. Stockholm: Nobel Foundation. Lin, H., & Hughes, M. (1997). Adjusting for regression toward the mean when variables are normally distributed. Statistical Methods in Medical Research, 6, 129–146. Loomes, G. (2005). Modelling the stochastic component of behaviour in experiments: Some issues for the interpretation of data. Experimental Economics, 8, 301–323. Loomes, G., Moffatt, P., & Sugden, R. (2002). A microeconometric test of alternative stochastic theories of risky choice. Journal of Risk and Uncertainty, 24, 103–130. Loomes, G., & Sugden, R. (1995). Incorporating a stochastic element into decision theories. European Economic Review, 39, 641–673. Loomes, G., & Sugden, R. (1998). Testing different stochastic specifications of risky choice. Economica, 65, 581–598. Luce, R. D. (1958). A probabilistic theory of utility. Econometrica, 26, 193–224. Luce, R. D. (1959). Individual choice behavior. New York: Wiley. Müller, H. G., Abramson, I., & Azari, R. (2003). Nonparametric regression to the mean. Proceedings of the National Academy of Sciences of the United States of America, 100, 9715–9720. Quandt, R. E. (1956). A probabilistic theory of consumer behavior. Quarterly Journal of Economics, 70, 507–536. Sabater-Grande, G., & Georgantzís, N. (2002). Accounting for risk aversion in repeated prisoners’ dilemma games: An experimental test. Journal of Economic Behavior and Organization, 48, 37–50. Schmidt, U., & Hey, J. D. (2004). Are preference reversals errors? An experimental investigation. Journal of Risk and Uncertainty, 29, 207–218. Schmidt, U., & Neugebauer, T. (2007). Testing expected utility in the presence of errors. Economic Journal, 517, 470–485. Schläpfer, F., Roschewitz, A., & Hanley, N. (2004). Validation of stated preferences for public goods: a comparison of contingent valuation survey response and voting behaviour. Ecological Economics, 51, 1–16. Starmer, C. (2000). Developments in non-expected utility theory: The hunt for a descriptive theory of choice under risk. Journal of Economic Literature, 38, 332–382. Starmer, C., & Sugden, R. (1989). Violations of the independence axiom in common ratio problems: An experimental test of some competing hypotheses. Annals of Operations Research, 19, 79–102. Starmer, C., & Sugden, R. (1991). Does the random-lottery incentive system elicit true preferences? An experimental investigation. American Economic Review, 81, 971–978. Stigler, S. M. (1997). Regression towards the mean, historically considered. Statistical Methods in Medical Research, 6, 103–114. Yudkin, P. L., & Stratton, I. M. (1996). How to deal with regression to the mean in intervention studies. Lancet, 347, 241–243.|
Actions (login required)