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Probabilistic States versus Multiple Certainties: The Obstacle of Uncertainty in Contingent Reasoning / Alejandro Martínez-Marquina, Muriel Niederle, Emanuel Vespa.
- Format:
- Book
- Author/Creator:
- Martínez-Marquina, Alejandro.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w24030.
- NBER working paper series no. w24030
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Other Title:
- Probabilistic States versus Multiple Certainties
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2017.
- Summary:
- We propose a new hypothesis, the Power of Certainty, to help explain agents' difficulties in making choices when there are multiple possible payoff-relevant states. In the probabilistic 'Acquiring-a-Company' problem an agent submits a price to a firm before knowing whether the firm is of low or high value. We construct a deterministic problem with a low and high value firm, where the agent submits a price that is sent to each firm separately. Subjects are much more likely to use dominant strategies in deterministic than in probabilistic problems, even though computations for profit maximization are identical for risk-neutral agents.
- Notes:
- Print version record
- November 2017.
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