Leadership

Decision Making With Imperfect Knowledge Of The State Space

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Executive Summary

The authors conduct an experiment to study how imperfect knowledge of the state space affects subsequent choices under uncertainty with perfect knowledge of the state space. Participants in the experiment choose between a sure outcome and a lottery in 32 periods. All treatments are exactly identical in periods 17 to 32 but differ in periods 1 to 16. In the early periods of the "Risk Treatment" there is perfect information about the lottery; in the "Ambiguity Treatment" participants perfectly know the outcome space but not the associated probabilities; in the "Unawareness Treatment" participants have imperfect knowledge about both outcomes and probabilities. All three treatments induce strong behavioural differences in periods 17 to 32.

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