The Explanatory and Predictive Power of Non Two-Stage Probability Theories of Decision Making Under Ambiguity

Abstract

Representing ambiguity in the laboratory using a Bingo Blower (which is transparent and not manipulable) and asking the subjects a series of allocation questions (which are more efficient than pairwise choice questions), we obtain data from which we can estimate by maximum likelihood methods (with explicit assumptions about the errors made by the subjects) a significant subset of the empirically relevant models of behaviour under ambiguity, and compare their relative explanatory and predictive abilities. Our results suggest that not all recent models of behaviour represent a major improvement in explanatory and predictive power, particularly the more theoretically sophisticated ones.

Keywords: Alpha Model, Ambiguity, Bingo Blower, Choquet Expected Utility, Contraction Model, Rank Dependent Expected Utility, Subjective Expected Utility, Vector Expected Utility

JEL Classification: D81, C9