Measuring the Completeness of Theories
38 Pages Posted: 16 Aug 2017 Last revised: 27 Jan 2020
Date Written: April 23, 2019
To evaluate how well economic models predict behavior it is important to have a measure of how well any theory could be expected to perform. We provide a measure of the amount of predictable variation in the data that a theory captures, which we call its "completeness." We evaluate the completeness of leading theories in three applications---assigning certainty equivalents to lotteries, initial play in games, and human generation of random sequences---and show that this approach reveals new insights. We also illustrate how and why our completeness measure varies with the experiments considered, for example with the choice of lotteries used to evaluate risk preferences, and explain how our completeness measure can help guide the development of new theories.
Keywords: Prediction, Randomness Perception, Theory Completeness
JEL Classification: C10, C52, C92, D9
Suggested Citation: Suggested Citation