CHOICE IN A SIMPLE GAME WITH LARGE STAKES
Egil Matsen og Bjarne Strøm
This paper examines data from the Norwegian television game show Joker,
contestants make well-specified choices under risk. The game involves
stakes, randomly drawn contestants, and ample opportunities for learning.
Expected utility (EU) theory gives a simple prediction of choice under
weak conditions, as one choice is always first-order stochastically dominating.
We document frequent, systematic and costly violations of dominance. Most
alternative theories fail to add explanatory power beyond the EU benchmark,
but many contestants appear to have a systematic expectation bias that
can be related to Tversky and Kahneman's (1973) "availability heuristic".
In addition, there seems to be a stochastic element in choice that is
well captured by the so-called Fechner model.