Iterated Random Selection as Intermediate Between Risk and Uncertainty

In [7] Hertwig et al. draw a distinction between decisions from experience and decisions from description. In a decision from experience an agent does not have a summary description of the possible outcomes or their likelihoods. A career choice, deciding whether to back up a computer hard drive, cross a busy street, etc., are typical examples of decisions from experience. In such decisions agents can rely only of their encounters with the corresponding prospects. By contrast, an agent furnished with information sources such as drug-package inserts or mutual-fund brochures—all of which describe risky prospects—will often make decisions from description. In [7] it is shown (empirically) that decisions from experience and decisions from description can lead to dramatically different choice behavior. Most of these results (summarized and analyzed in [6]) are concerned with the role of risk in decision making. This article presents some preliminary results concerning the role of uncertainty in decision making. We focus on Ellsberg’s two-color problem and consider a chance setup based on double sampling. We report empirical results which indicate that decisions from description where subjects select between a clear urn, the chance setup based on double sampling and Ellsberg’s vague urn, are such that subjects perceive the chance setup at least as an intermediate option between clear and vague choices (and there is evidence indicating that the double sampling chance setup is seen as operationally indistinguishable from the vague urn). We then suggest how the iterated chance setup can be used in order to study decisions from experience in the case of uncertainty.