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Individual and Group Decision Making Under Risk: An Experimental Study of Bayesian Updating and Violations of First-order Stochastic Dominance

  • Author(s): Charness, Gary B
  • Karni, Edi
  • et al.
Abstract

This paper reports the results of experiments designed to test whether individuals and groups abide by monotonicity with respect to first-order stochastic dominance and Bayesian updating, when making decisions under risk. The results indicate a significant number of violations of both principles. The violation rate when groups make decisions is substantially lower, and decreasing with group size, suggesting that social interaction improves the decision-making process. Greater transparency of the decvision task reduce the violation rate, suggesting that these violations are due to judgment errors rather than the preference structure. In one treatment, however, less complex decisions result in higher error rate.

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