Decisions Under Uncertainty: Source Dependence

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This project studies how individuals actually make decisions under uncertainty. Respondents will state cash equivalences for prospects defined over events. The project will then empirically validate recent axiomatic models of decision making which allow the separation of attitudes about consequences from attitudes about risk and uncertainty and which are defined over events that do not necessarily have a well-defined additive probability measure. The proposed research seeks to characterize risk attitudes as a function of the events(the weighting function) rather than the traditional view of characterizing risk attitudes as a function of the utility curve. Seven studies are proposed to understand people's attitudes about risk and uncertainty. The main focus of the studies will be to characterize properties of the weighting function and understand the relationship between the source of the uncertainty and the shape of the weighting function (i.e., source dependence.) Supplementing the empirical work will be a study of additional constraints, or axioms, needed to specify functional forms for the weighting function.