We formulate and investigate experimentally a model of how individuals choose between time sequences of monetary outcomes. The model assumes that a decision maker uses, sequentially, two criteria to screen options. Each criterion only permits a decision between some pairs of options,while the other options are incomparable according to that criterion. When the first criterion is not decisive, the decision maker resorts to the second criterion to select an alternative. We find that: (1) traditional economic models based on discounting alone cannot explain a significant (almost 30%) proportion of the data no matter how much variability in the discount functions is allowed; (2) our model, despite considering only a specific (exponential) form of discounting, can explain the data much better solely thanks to the use of the secondary criterion; (3) our model explains certain specific patterns in the choices of the “irrational” people.We reject the hypothesis that anomalous behavior is due simply to random “mistakes” around the basic predictions of discounting theories: deviations are not random and there are clear systematic patterns of association between “irrational” choices.

Choosing monetary sequences: theory and experimental evidence / P., Manzini; M., Mariotti; Mittone, Luigi. - In: THEORY AND DECISION. - ISSN 0040-5833. - STAMPA. - 69:(2010), pp. 327-354. [10.1007/s11238-010-9214-7]

Choosing monetary sequences: theory and experimental evidence

Mittone, Luigi
2010-01-01

Abstract

We formulate and investigate experimentally a model of how individuals choose between time sequences of monetary outcomes. The model assumes that a decision maker uses, sequentially, two criteria to screen options. Each criterion only permits a decision between some pairs of options,while the other options are incomparable according to that criterion. When the first criterion is not decisive, the decision maker resorts to the second criterion to select an alternative. We find that: (1) traditional economic models based on discounting alone cannot explain a significant (almost 30%) proportion of the data no matter how much variability in the discount functions is allowed; (2) our model, despite considering only a specific (exponential) form of discounting, can explain the data much better solely thanks to the use of the secondary criterion; (3) our model explains certain specific patterns in the choices of the “irrational” people.We reject the hypothesis that anomalous behavior is due simply to random “mistakes” around the basic predictions of discounting theories: deviations are not random and there are clear systematic patterns of association between “irrational” choices.
2010
P., Manzini; M., Mariotti; Mittone, Luigi
Choosing monetary sequences: theory and experimental evidence / P., Manzini; M., Mariotti; Mittone, Luigi. - In: THEORY AND DECISION. - ISSN 0040-5833. - STAMPA. - 69:(2010), pp. 327-354. [10.1007/s11238-010-9214-7]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11572/85557
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