Uncertainty in Individual and Social Decisions: theory and experiments

In most decisions we have to choose between options that involve some uncertainty about their outcomes and their effect on our well-being. Casual observation and carefully controlled studies suggest that, in making these decisions, we often deviate from the benchmark of expected income maximization. This should not come as a surprise. Our well-being is affected by many factors, and the outside observer does not know the importance of various dimensions of the outcome to the decision maker. Even if goals are well defined, it is far from obvious that we succeed in choosing what is best for us. The psychological literature has shown deviations from optimal behavior in simple decision tasks, and we may expect similar deviations to occur in more complex real life problems. In real life situations, however, experience and market interaction will help to restrain suboptimal behavior. This thesis examines deviations from expected income maximization in situations involving uncertainty. We focus on deviations generated by social factors.

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