An Experiment on the Relative Effects of Ability, Temperament and Luck on Search with Uncertainty
39 Pages Posted: 11 Sep 2000
Date Written: July 2000
The problem of decision making in the face of uncertainty is a ubiquitous problem in day to day economic decision making. Psychologists have found that a number of factors can influence the quality of such decision making, including ability, temperament and of course sheer luck. We report the results obtained from an experimental framework that begins an evaluation of the relative importance of these factors in a simple search problem where the complexity of search is the major treatment variable. We find that variations in complexity and "luck" explain most of the variation in performance. However, individual heterogeneity also explains a significant portion. Individual differences matter most when the problem is of moderate complexity. A small portion of the heterogeneity is attributable to ability, but a more significant portion is attributable to variations in what we might label temperament. Finally, we find that framing the incentive as a bonus, rather than a penalty, encourages search but does not significantly affect performance.
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