Experimental Design
In our experimental design, we implement uncertainty via a sealed urn (a bag), which will be filled with colored balls in unknown proportion. Subjects face four decision tasks. Each decision task is to choose between two binary prospects, called bets on colors. Each bet pays a positive amount of money if the chosen color matches the color of a random and independent draw (with replacement) from the urn. Otherwise, the bet pays nothing. The color of the ball drawn represents the state of the world.
Each subject will face two stages, which are implemented sequentially. In the first stage, subjects choose to bet on one of two colors (e.g., green vs blue). In the second stage, subjects receive additional information about the colors the urn contains. The information represents new information about states of the world. Given this information structure, subjects solve four decision tasks, allowing us to test various decision criteria.
To shed more light on how subjects react to such new information about states, we implement two treatments: the refinement-treatment and the expansion-treatment. In the refinement-treatment, subjects discover a new attribute of an existing color (e.g., blue can be either light blue or dark blue). In the expansion-treatment, subjects discover a new color (e.g., brown).
We follow the standard methodology in behavioral and experimental economics and use subject’s choices to make inferences about preferences. That is, we test adherence of “revealed preferences” to some well-known decision theories such as subjective expected utility, biseparable preferences, and reverse Bayesianism.
Subjects will be informed that they will be compensated with a show-up fee of DKK 75 for their time and that they may earn additional compensation up to a maximum total payment of DKK 225 depending upon the decisions that the subject makes during the experiment and the outcome of the random draws from the urn.
We follow a standard procedure of paying the subjects for one randomly selected decision task out of the four they face. This procedure avoids that subjects hedge their choices across the tasks. The subjects will be informed of this procedure in the instructions.
We will use the subject pool in the COBE Lab’s Sona recruitment system. By doing so, we are following the standard protocol in experimental economics of using mostly student subjects. We do not intend to target any specific populations within this group.
Our experiment is a paper-and-pen experiment. The experiment will take approximately 50 minutes to conduct and will take place in the COBE Lab which is a dedicated facility for human subjects research. Subjects will be randomly assigned to one of our treatments.