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Noisy preferences in risky choice : a cautionary note
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Bhatia, Sudeep and Loomes, Graham (2017) Noisy preferences in risky choice : a cautionary note. Psychological Review, 124 (5). pp. 678-687. doi:10.1037/rev0000073 ISSN 0033-295X.
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Official URL: http://dx.doi.org/10.1037/rev0000073
Abstract
We examine the effects of multiple sources of noise in risky decision making. Noise in the parameters that characterise an individual’s preferences can combine with noise in the response process to distort observed choice proportions. Thus underlying preferences that conform to expected value maximization can appear to show systematic risk aversion or risk seeking. Similarly, core preferences that are consistent with expected utility theory, when perturbed by such noise, can appear to display non-linear probability weighting. For this reason, modal choices cannot be used simplistically to infer underlying preferences. Quantitative model fits that do not allow for both sorts of noise can lead to wrong conclusions.
Item Type: | Journal Article | ||||||||
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Subjects: | H Social Sciences > HB Economic Theory Q Science > QA Mathematics |
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Divisions: | Faculty of Social Sciences > Economics | ||||||||
Library of Congress Subject Headings (LCSH): | Utility theory -- Mathematical models, Decision making -- Mathematical models | ||||||||
Journal or Publication Title: | Psychological Review | ||||||||
Publisher: | American Psychological Association | ||||||||
ISSN: | 0033-295X | ||||||||
Official Date: | 2017 | ||||||||
Dates: |
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Volume: | 124 | ||||||||
Number: | 5 | ||||||||
Page Range: | pp. 678-687 | ||||||||
DOI: | 10.1037/rev0000073 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Access rights to Published version: | Open Access (Creative Commons) | ||||||||
Date of first compliant deposit: | 21 April 2017 | ||||||||
Date of first compliant Open Access: | 10 April 2018 | ||||||||
Grant number: | ES/K002201/1 | ||||||||
RIOXX Funder/Project Grant: |
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