Failures in Contingent Reasoning: The Role of Uncertainty

Alejandro Martínez-Marquina, Muriel Niederle and Emanuel Vespa

American Economic Review, 2019, vol. 109, issue 10, 3437-74

Abstract: We propose a new channel to account for the difficulties of individuals with contingent reasoning: the presence of uncertainty. When moving from an environment with one state of known value to one with multiple possible values, two changes occur. First, the number of values to consider increases. Second, the value of the state is uncertain. We show in an experiment that this lack of certainty, or the loss of the Power of Certainty, impedes payoff maximization and that it accounts for a substantial portion of the difficulties with contingent reasoning.

JEL-codes: D12 D81 D91 (search for similar items in EconPapers)
Date: 2019
Note: DOI: 10.1257/aer.20171764
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Citations: View citations in EconPapers (41)

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