Individual decision making under risk and uncertainty: a perspective in the literature

Abstract

In the past 15 years much research has been done in the area of individuai decision making under risk and uncertainty. Such work has focussed on sys tematic violations of Expected Utility theory, either expressed in the von Neu mann and Morgentern's formulation (1944) for choice under risk or in Savage's (1954) setting for choice under uncertainty, as well as on the de velopment of alternative models capable of explaining such violations. Several valuable surveys cover different aspects of this literature: Ap pleby and Starmer (1987) review the evidence against Expected Utility for choice under risk; Machina (1987); Sugden (1986) and Weber Camerer (1987) discuss analytical properties of some of the models developed to accommo date such evidence; Camerer Weber (1991) survey both the experimental evi dence and the non-expected utility models for choice under uncertainty; Fish burn, (1988); Kischka Puppe (1990), and Karni Schmeidler (1991) inspect the axiomatic foundations of the non-Expected Utility models both for choice under risk and for choice under uncertainty; Hey (1991) presents an over view of the methodological issues connected with the development of ex perimental tests for such theories; and Epstein (1990) surveys some economie applications of the «for choice under risk» models. One essential feature of the research work in this area, emphasized by ali the above reviews, is that no single model appears to be able to accom modate ali the violations against the conventional Expected Utility model. The aim of this survey is to provide a guide for the selection of a proper

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