Individual and Group Decision Making Under Risk: An Experimental Study of Bayesian Updating and Violations of First-order Stochastic Dominance

Gary Charness and Edi Karni

University of California at Santa Barbara, Economics Working Paper Series from Department of Economics, UC Santa Barbara

Abstract: This paper reports the results of experiments designed to test whether individuals and groups abide by monotonicity with respect to first-order stochastic dominance and Bayesian updating, when making decisions under risk. The results indicate a significant number of violations of both principles. The violation rate when groups make decisions is substantially lower, and decreasing with group size, suggesting that social interaction improves the decision-making process. Greater transparency of the decvision task reduce the violation rate, suggesting that these violations are due to judgment errors rather than the preference structure. In one treatment, however, less complex decisions result in higher error rate.

Keywords: Decision making under risk; group decisions; Bayesian updating; first-order stochastic dominance. (search for similar items in EconPapers)
Date: 2007-10-01
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Citations: View citations in EconPapers (123)

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Journal Article: Individual and group decision making under risk: An experimental study of Bayesian updating and violations of first-order stochastic dominance (2007)
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