Decision makers facing uncertainty: Theory versus evidence

Abstract

This paper aims at assessing cultural di¤erences in uncertainty attitude across Europe. We select questions from the European Values Survey (EVS) capturing salient features of uncertain scenarios ("safe versus uncertain", "freedom of choice" and "reduction of uncertainty"), and formalize these questions through simple decision-theoretic problems. We then consider three competing normative models of choice under uncertainty (subjective expected utility (SEU), maximin utility and minimax regret), and analyze how they behave when facing each decision problem. We obtain theoretical predictions and, using the EVS dataset, we test them via latent class analysis to estimate the distribution of these behaviors across EU15. We …nd a larger proportion of SEU maximizers (Bayesians) in northern countries than in southern countries. The opposite is true for maximin utility behavior. Only a few are consistent with minimax regret behavior.

A picture of regret: An empirical investigation of post-Brexit referendum survey data

“…The literature providing analyses of voting is vast, both in theoretical and empirical terms (see, for examples of some surveys, Giordani et al, 2010; Lewis-Beck and Stegmaier, 2007, 2013; Nannestad and Paldam, 1994; Paldam, 1981). More recently, attention has been drawn to the role of both instrumental and expressive voting in elections or combinations of both motivations.…”

Information, Bertrand–Edgeworth competition and the law of one price

“…One appealing property of Maximin preferences stems from the ability to explain classic examples of behaviour that are incompatible with Subjective Expected Utility (SEU) theory, including the Ellsberg and Allais Paradoxes (Ellsberg, 1961;Halpern and Leung, 2016). Recent empirical evidence includes Giordani et al (2010), who analyse responses to the European Values Survey to understand how individuals approach uncertain possibilities. Maximin utilities play a substantive role and underpin the behaviour of 23% of individuals surveyed, with significant geographical variation.…”