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Published March 4, 2021 | Submitted
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Decision Making under Uncertainty: An Experimental Study in Market Settings


We design and implement a novel experimental test of subjective expected utility theory and its generalizations. Our experiments are implemented in the laboratory with a student population and pushed out through a large-scale panel to a general sample of the U.S. population. We find that a majority of subjects' choices are consistent with the maximization of some utility function, but not with subjective utility theory. The theory is tested by gauging how subjects respond to price changes. A majority of subjects respond to price changes in the direction predicted by the theory, but not to a degree that makes them fully consistent with subjective expected utility. Surprisingly, maxmin expected utility adds no explanatory power to subjective expected utility. Our findings remain the same regardless of whether we look at laboratory data or the panel survey, even though the two subject populations are very different. The degree of violations of subjective expected utility theory is not affected by age nor cognitive ability, but it is correlated with financial literacy.

Additional Information

The authors wish to thank Aurélien Baillon, Yoram Halevy, Yves Le Yaouanq, Olivia Mitchell, Pietro Ortoleva, Maricano Siniscalchi, and Charles Sprenger for helpful discussions. The authors also thank Noriko Imai for developing the software for the experiment, Yimeng Li for research assistance, John Duffy, Michael McBride, and Jason Ralston for supporting our experiments at ESSL, and Tania Gutsche and Bart Orriens at CESR (University of Southern California) for setting up and implementing the survey on the Understanding America Study. This research is supported by Grant SES1558757 from the National Science Foundation and the TIAA Institute and Wharton School's Pension Research Council/Boettner Center. In addition, Echenique thanks the NSF for its support through the grant CNS-1518941, and Imai acknowledges financial support by the Deutsche Forschungsgemeinschaft through CRC TRR 190. The project described received funding from the TIAA Institute and Wharton School's Pension Research Council/Boettner Center. The content is solely the responsibility of the authors and does not necessarily represent official views of the TIAA Institute or Wharton School's Pension Research Council/Boettner Center. The project described in this paper relies on data from surveys administered by the Understanding America Study, which is maintained by the Center for Economic and Social Research (CESR) at the University of Southern California. The content of this paper is solely the responsibility of the authors and does not necessarily represent the official views of USC or UAS. A summary of our research was published in the TIAA Institute's "Trends and issues," and a first draft of this paper on their "Research dialogue."

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