Essays on Individual Decision Making under Risk and Uncertainty

This thesis aims to empirically test the validity of economic theories of the individual decision making under risk and uncertainty with a laboratory experiment. The first chapter outlines this thesis. The second chapter experimentally tests Manski's theory of satisficing (2017). He proposes solutions to two key questions: when should the decision-maker (DM) satisfice?; and how should the DM satisfice? The results show that some of Manski's proposition (those relating to the “how”) appear to be empirically valid while others (those relating to the “when”) are less so. The third chapter extends the findings from the previous chapter, mainly relating to “how to satisfice”. I propose an alternative story with a different assumption of the subjects' preference functional and of the payoff distribution. The results suggest that my alternative story appears to better-explain the subjects' behaviour than that of Manski's story. The fourth chapter explores the individual behaviour towards randomisation of the choice. I use the elicitation method that provides an additional option between two alternatives, namely “I am not sure what to choose” as an alternative of two standard options: "I choose A" or "I choose B". It gives a consequence where the subjects' payoff is determined by a randomisation of two alternatives through the flipping a coin. I propose four stories to account for the choice of this option. The results show that the most of the subjects either have strictly convex preferences with random risk attitude or simply cannot distinguish the two alternatives. The fifth chapter empirically tests Nicolosi's model (2018). He derives the optimal strategy for the fund manager under a specific payment contract and the investment environment. I compare his model with other strategies. The results show that Nicolosi's model receives strong empirical support to explain the subjects' behaviour.