Document Type
Article
Publication Title
Journal of Risk and Uncertainty
Publication Date
12-2018
ISSN
0895-5646
Page Number
225
Keywords
uncertainty, risk of death, Bayesian learning, bounded rationality
Disciplines
Law | Law and Economics
Abstract
This article provides an experimental analysis of two-armed bandit problems that have a different structure in which the first unsuccessful outcome leads to termination of the game. It differs from a conventional two-armed bandit problem in that there is no opportunity to alter behavior after an unsuccessful outcome. Introducing the risk of death into a sequential decision problem alters the structure of the problem. Even though play ends after an unsuccessful outcome, Bayesian learning after successful outcomes has a potential function in this class of two-armed bandit problems. Increasing uncertainty boosts the chance of long-term survival since ambiguous probabilities of survival are increased more after each successful outcome. In the independent choice experiments, a slim majority of participants displayed a preference for greater risk ambiguity. Particularly in the interdependent choice experiments, participants were overly deterred by ambiguity. For both independent and interdependent choices, there were several dimensions on which participants displayed within session rationality. However, participants failed to learn and improve their strategy over a series of rounds, which is consistent with evidence of bounded rationality in other challenging games.
Recommended Citation
W. Kip Viscusi and Scott DeAngelis,
Decision Irrationalities Involving Deadly Risks, 57 Journal of Risk and Uncertainty. 225
(2018)
Available at: https://scholarship.law.vanderbilt.edu/faculty-publications/1549