Decisions from Experience and from Description: Beliefs and Probability Weighting

Decisions from description typically concern risk in the literature on decision making. It is identified as a case where outcome probabilities are objectively known.
Decisions from experience, on the other hand, represent a case of ambiguity. Here, the outcome probabilities are not known objectively but they are subjectively inferred based on observations.
As in many real life situations, probabilistic inference and information search are integral parts of decisions from experience.

This dissertation explores behavioral differences between decisions from experience and from description by focusing on the role of (1) probability weighting, and (2) subjective beliefs. Chapter 2 investigates the impact of experience on probability weighting. Chapter 3 points out the role of prior beliefs in accounting for decisions from experience. Chapter 4 introduces a non-Bayesian model of updating which accommodates common biases in probabilistic inference. Chapter 5 reports results of a laboratory experiment testing Prelec’s (1998) theory of probability weighting