Knowing When to Stop and Make a Choice, an Experiment on Optimal Sequential Sampling

47 Pages Posted: 13 Dec 2016 Last revised: 9 Oct 2017

See all articles by Ambroise Descamps

Ambroise Descamps

Queensland University of Technology - Queensland Behavioral Economics Group (QuBE)

Sébastien Massoni

Queensland University of Technology - Queensland Behavioral Economics Group (QuBE)

Lionel Page

Queensland University of Technology

Date Written: December 12, 2016

Abstract

We investigate how people make choices when they are unsure about the value of the options they face, and can invest in the acquisition of more information. We design a laboratory experiment to study whether human behaviour is able to approximate the optimal solution to this sequential sampling problem. We find that participants deviate from the optimal strategy in a systematic manner: information is either mostly over-sampled or mostly under-sampled, depending on the cost of information. With time, participants tend to learn, without converging towards equilibrium. This deviation costs participants between 10% and 25% of their potential payoffs. We examine various explanations to our results, and find that the most likely one is that participants exhibit a confirmation bias.

Keywords: Search, Decision, Applications, Information, Economics

JEL Classification: C91, D81, D83

Suggested Citation

Descamps, Ambroise and Massoni, Sébastien and Page, Lionel, Knowing When to Stop and Make a Choice, an Experiment on Optimal Sequential Sampling (December 12, 2016). Available at SSRN: https://ssrn.com/abstract=2883847 or http://dx.doi.org/10.2139/ssrn.2883847

Ambroise Descamps (Contact Author)

Queensland University of Technology - Queensland Behavioral Economics Group (QuBE) ( email )

2 George Street
GPO Box 2434
Brisbane, 4510
Australia

Sébastien Massoni

Queensland University of Technology - Queensland Behavioral Economics Group (QuBE) ( email )

2 George Street
GPO Box 2434
Brisbane, 4510
Australia

Lionel Page

Queensland University of Technology ( email )

2 George Street
Brisbane, Queensland 4000
Australia

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