Experience and rationality under risk: re-examining the impact of sampling experience

Ilke Aydogan () and Yu Gao ()
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Ilke Aydogan: IESEG School of Management
Yu Gao: Peking University

Experimental Economics, 2020, vol. 23, issue 4, No 7, 1100-1128

Abstract: Abstract A recent strand of the literature on decision-making under uncertainty has pointed to an intriguing behavioral gap between decisions made from description and decisions made from experience. This study reinvestigates this description-experience gap to understand the impact that sampling experience has on decisions under risk. Our study adopts a complete sampling paradigm to address the lack of control over experienced probabilities by requiring complete sampling without replacement. We also address the roles of utilities and ambiguity, which are central in most current decision models in economics. Thus, our experiment identifies the deviations from expected utility due to over- (or under-) weighting of probabilities. Our results confirm the existence of the behavioral gap, but they provide no evidence for the underweighting of small probabilities within the complete sampling treatment. We find that sampling experience attenuates rather than reverses the inverse S-shaped probability weighting under risk.

Keywords: Decisions from experience; Decisions under risk; Probability weighting; Rare outcomes; D81; D83; C91 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s10683-019-09641-y

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