WP 2011-13 The Rich Domain of Uncertainty: Comment

AUTHOR: Glenn W. Harrison

ABSTRACT. Abdellaoui, Baillon, Placido and Wakker [2011] conclude that different probability weighting functions are used when subjects face risky processes with known probabilities and uncertain processes with subjective processes. They call this “source dependence,” where the notion of a source is relatively easy to identify in the context of an artefactual laboratory experiment, and hence provides the tightest test of this proposition. Unfortunately, their conclusions are an artefact of estimation procedures that do not worry about sampling errors. These procedures have become ingrained in experimental economics more generally, and need to be examined carefully. In this case, they make a huge difference to the inferences one draws. Undertaking a maximum likelihood evaluation of their data, allowing for sampling errors, there is no evidence for source dependence.