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Colour-coded decisions: an experiment on case-based decision theory

Published online by Cambridge University Press:  01 January 2025

Benjamin Radoc Open the ORCID record for Benjamin Radoc [Opens in a new window]
Benjamin Radoc*
Affiliation:
Department of Economics, Ateneo de Manila University, Quezon City, Philippines BSP Research Academy, Bangko Sentral ng Pilipinas, Manila, Philippines
*
[email protected]
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Abstract

Decision makers typically possess limited knowledge on states of the world so that use of information from past similar experiences is reasonable. This analogical thinking is formalised by case-based decision theory (CBDT). We created a novel experimental setting to validate the predictive power of CBDT versus Bayesian reasoning. Participants encountered a salient but irrelevant cue which a Bayesian decision maker is likely to ignore but a case-based decision maker may use in assessing similarity. We find that although the irrelevant similarity cue was used, the pattern in participants’ decisions is neither case-based nor Bayesian. The results suggest that CBDT does not apply in simple decision settings where similarity cues are uninformative.

Keywords

Bayesian reasoningCase-based decisionGambler's fallacySimilarity

JEL classification

D9: Micro-Based Behavioral Economics‡ C91: Laboratory, Individual Behavior D81: Criteria for Decision-Making under Risk and Uncertainty
Type
Original Paper
Information
Journal of the Economic Science Association , Volume 10 , Issue 2: Special Issue: Behavioral and Experimental Economics for Innovative Policy-Making (Articles 1 to 3) , December 2024 , pp. 519 - 530
Copyright
Copyright © The Author(s), under exclusive licence to Economic Science Association 2024.

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