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Direct Tests on Individual Behaviour in Small Decision-Making Problems

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Author(s): Takemi Fujikawa

Journal: Journal of Systemics, Cybernetics and Informatics
ISSN 1690-4532

Volume: 5;
Issue: 5;
Start page: 21;
Date: 2007;
Original page

Keywords: the certainty effect | exploration | search | experiments | small decision

ABSTRACT
This paper provides an empirical and experimental analysis of individual decision making in small decision-making problems with a series of laboratory experiments. Two experimental treatments with binary small decision-making problems are implemented: (1) the search treatment with the unknown payoff distribution to the decision makers and (2) the choice treatment with the known payoff distribution. A first observation is that in the search treatment the tendency to select best reply to the past performances, and misestimation of the payoff distribution can lead to robust deviations from expected value maximisation. A second observation is concerned with choice problems with two options with the same expected value: one option is more risky with larger payoff variability; the other option is moderate with less payoff variability. Experimental results show that it is likely that the more the decision makers choose a risky option, the higher they can achieve high points, ex post. Finally, I investigate the exploration tendency. Comparison of results between the search treatment and the choice treatment reveals that the additional information to the decision makers enhances expected value maximisation.
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