American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Failures in Contingent Reasoning: The Role of Uncertainty
American Economic Review
vol. 109,
no. 10, October 2019
(pp. 3437–74)
Abstract
We propose a new channel to account for the difficulties of individuals with contingent reasoning: the presence of uncertainty. When moving from an environment with one state of known value to one with multiple possible values, two changes occur. First, the number of values to consider increases. Second, the value of the state is uncertain. We show in an experiment that this lack of certainty, or the loss of the Power of Certainty, impedes payoff maximization and that it accounts for a substantial portion of the difficulties with contingent reasoning.Citation
Martínez-Marquina, Alejandro, Muriel Niederle, and Emanuel Vespa. 2019. "Failures in Contingent Reasoning: The Role of Uncertainty." American Economic Review, 109 (10): 3437–74. DOI: 10.1257/aer.20171764Additional Materials
JEL Classification
- D12 Consumer Economics: Empirical Analysis
- D81 Criteria for Decision-Making under Risk and Uncertainty
- D91 Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making