Savage vs. Anscombe-Aumann: an experimental investigation of ambiguity frameworks

The Savage and the Anscombe–Aumann frameworks are the two most popular approaches used when modeling ambiguity. The former is more flexible, but the latter is often preferred for its simplicity. We conduct an experiment where subjects place bets on the joint outcome of an ambiguous urn and a fair coin. We document that more than a third of our subjects make choices that are incompatible with Anscombe–Aumann for any preferences, while the Savage framework is flexible enough to account for subjects’ behaviors.

     

Informational cascades in the laboratory: Do they occur for the right reasons?

Recently, the theory of informational cascades has been tested in an experiment by L. Anderson and Ch. Holt (American Economic Review, 87 (1997) 847–862) who report that their data support the theory amazingly well. In this paper we report on an experiment designed to find out whether observed cascades are indeed due to rational Bayesian updating. However, we find little support for rational updating. The simple heuristic “follow your own signal” does much better in explaining our data than Bayesian rationality.