This thesis consists of three chapters. They are on three different topics, but they are related in the sense that they are concerned with decision-making under risk or uncertainty.
In Chapter 1, we use an analogy of walking through fog to explain the problem under study. Fog has the property that vision becomes less and less clear the further ahead that you try to look, and after a certain distance you simply cannot see anything. In the experiment, the subject’s aim is to travel across the foggy and hilly terrain with minimum energy expenditure. This problem, although set in a non-economic context, obviously has relevance to many economic problems.
Chapter 2 is about elicitation methods for discovering subjects’ risk preferences. The concern of the experiment is to compare four different methods used for eliciting the level of risk aversion. We carried out an experiment in four parts, corresponding to the four different methods and our methodology involves fitting four different preference functionals. Our results show that the inferred level of risk aversion is more sensitive to the elicitation method than to the assumed-true preference functional. Experimenters should worry most about context.
Chapter 3 is about the interrelationship of decisions which come in a series. The validity of Random Lottery Incentive mechanism has been investigated in two main ways: first, just two decision problems, and second, many problems. This chapter combines and extends these two ways by investigating a cognitively less-demanding hypothesis than that all previous decisions are taken into account, but allows for an indirect effect of previous decisions on current ones. Reassuringly we find little effect and hence our results complement the previous evidence indicating that the Random Lottery Incentive mechanism is robust and can safely be used.
