American Economic Review Vol. 109 No. 10 2019

Failures in Contingent Reasoning: The Role of Uncertainty

Alejandro Martínez-Marquina¹; Muriel Niederle²; Emanuel Vespa³

¹ Department of Economics, Stanford University, Stanford, CA 94305 (email: ) · ² Department of Economics, Stanford University, Stanford, CA 94305 and National Bureau of Economic Research (NBER) (email: ) · ³ Department of Economics, University of California at Santa Barbara, 2127 North Hall, Santa Barbara, CA 93106 (email: )

Abstract

We propose a new channel to account for the difficulties of individuals with contingent reasoning: the presence of uncertainty. When moving from an environment with one state of known value to one with multiple possible values, two changes occur. First, the number of values to consider increases. Second, the value of the state is uncertain. We show in an experiment that this lack of certainty, or the loss of the Power of Certainty, impedes payoff maximization and that it accounts for a substantial portion of the difficulties with contingent reasoning.

DOI

10.1257/aer.20171764

Volume

109

Issue

10

Pages

3437-3474

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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