Fujikawa, Takemi (2009): The hot stove effect in repeated-play decision making under ambiguity.
Download (175kB) | Preview
The ''hot stove effect'' has been studied for repeated-play decision making under uncertainty (also referred to as experience-based decision making) in which the decision makers repeatedly face the Allais-type binary choice problems, and have to learn about the outcome distributions through sampling as the decision makers are not explicitly provided with prior information on the payoff structure. The previous studies have found mixed evidence: some studies have found that the hot stove effect is strong in repeated-play decision making under uncertainty, while other studies have found that the effect is weak. Thus, the evidence is inconsistent. This paper reports an experimental investigation of the hot stove effect in repeated-play decision making under ambiguity. The current experiment involves an ambiguity treatment in which (1) the participants perform two binary repeated-play choice problems, each involving 400-fold choice between a risky option and a riskless option; and (2) in each problem, there are two states of nature available: a favourable state and an unfavourable state, but only one of them obtains on any given trial. The realisation of the actual state is not disclosed to the participants, thus they would be expected to discover the actual state through sampling with immediate feedback. The current results suggest that the magnitude of the hot stove effect is significantly different between repeated-play decision making under uncertainty and repeated-play decision making under ambiguity. I shall show that the hot stove effect is attenuated in repeated-play decision making under ambiguity.
|Item Type:||MPRA Paper|
|Original Title:||The hot stove effect in repeated-play decision making under ambiguity|
|Keywords:||Allais-type choices; decisions from experience; risk; uncertainty|
|Subjects:||D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search; Learning; Information and Knowledge; Communication; Belief
C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior
|Depositing User:||Takemi Fujikawa|
|Date Deposited:||04. Oct 2009 13:17|
|Last Modified:||09. Jan 2014 18:09|
Barron, G., & Erev, I. (2003). Small feedback-based decisions and their limited correspondence to description-based decisions. Journal of Behavioral Decision Making, 16, 215-233.
Coutu, D. (2006). Ideas as art. Harvard Business Review, 84, 82-89.
Denrell, J., & March, J. G. (2001). Adaptation as information restriction: The hot stove eﬀect. Organization Science, 12, 523-538.
Easley, D., & O’Hara, M. (2005). Regulation and return: The role of ambiguity. Working Paper, Cornel l University.
Einhorn, H. J., & Hogarth, R. M. (1986). Decision making under ambiguity. Journal of Business, 59, S225-S250.
Erev, I., & Barron, G. (2005). On adaptation, maximization, and reinforcement learning among cognitive strategies. Psychological Review, 112, 912-931.
Fox, C. R., & Hadar, L. (2006). “decisions from experience” = sampling error + prospect theory: Reconsidering hertwig, barron, weber & erev (2004). Judgment and Decision Making, 1, 159-161.
Fujikawa, T. (2009). On the relative importance of the hot stove eﬀect and the tendency to rely on small samples. Judgment and Decision Making, 4, 429-435.
Hau, R., Pleskac, T. J., Kiefer, J., & Hertwig, R. (2008). The description-experience gap in risky choice: The role of sample size and experienced probabilities. Journal of Behavioral Decision Making, 21, 493-518.
Klibanoﬀ, P., Marinacci, M., & Mukerji, S. (2005). A smooth model of decision making under ambiguity. Econometrica, 73, 1849-1892.
Mukerji, S. (1998). Ambiguity aversion and the incompleteness of contractual form. American Economic Review, 88, 1207-1231.
Mukerji, S., & Tallon, J. M. (2001). Ambiguity aversion and incompleteness of ﬁnancial markets. Review of Economic Studies, 68, 883-904.
Mukerji, S., & Tallon, J. M. (2003). Ellsberg 2-color experiment, portfolio inertia and ambiguity. Journal of Mathematical Economics, 39, 299-316.
Mukerji, S., & Tallon, J. M. (2004). Ambiguity aversion and the absence of wage indexation. Journal of Monetary Economics, 51, 653-670.
Munichor, N., Erev, I., & Lotem, A. (2006). Risk attitude in small timesaving decisions. Journal of Experimental Psychology: Applied, 12, 129-141.