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Web End = Theory Dec. (2015) 79:639666
DOI 10.1007/s11238-015-9492-1
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Web End = An experiment on case-based decision making
Brit Grosskopf Rajiv Sarin Elizabeth Watson
Published online: 17 March 2015
Springer Science+Business Media New York 2015
Abstract We experimentally investigate the disposition of decision makers to use case-based reasoning as suggested by Hume (An enquiry concerning human understanding, 1748) and formalized by case-based decision theory (Gilboa and Schmeidler in Q J Econ 110:605639, 1995). Our subjects face a monopoly decision problem about which they have very limited information. Information is presented in a manner which makes similarity judgements according to the feature matching model of Tversky (Psychol Rev 84:327352, 1977) plausible. We provide subjects a history of cases. In the 22 between-subject design, we vary whether information about the current market is
given and whether immediate feedback about obtained prots is provided. The results provide support for the predictions of case-based decision theory, particularly when no immediate feedback is provided.
Keywords Case-based decision making Case-based reasoning Heuristics
Limited information environments Similarity
1 Introduction
Considerable decision making in economics occurs in complex environments in which the decision makers knowledge of the payoff function she faces is severely constrained. Very little is known about decision making procedures in such environments. Expected utility theory does not seem plausible in such situations and, furthermore,
B. Grosskopf (B) R. Sarin
University of Exeter, Exeter, UK
e-mail: [email protected]
E. Watson
Trinity University, San Antonio, TX, USA
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640 B. Grosskopf et al.
cannot be used to make meaningful predictions. It seems reasonable to suppose that people use a variety of procedures or decision making algorithms in such complex environments in which the decision makers information is severely limited.
A theory of decision making which is suitable for complex environments follows from the ideas of the late Scottish philosopher David Hume (17111776). According to Hume (1748), From causes which appear similar we expect similar effects. Hume went on to assert that This is the sum of all our experimental conclusions. A recent formulation of decision making by Gilboa and Schmeidler (2001) provides a...