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A Belief-Based Account of Decision Under Uncertainty

Fuqua School of Business, Duke University, Durham, North Carolina 27708-0120
Department of Psychology, Stanford University, Stanford, California 94305

We develop a belief-based account of decision under uncertainty. This model predicts decisions under uncertainty from (i) judgments of probability, which are assumed to satisfy support theory; and (ii) decisions under risk, which are assumed to satisfy prospect theory. In two experiments, subjects evaluated uncertain prospects and assessed the probability of the respective events. Study 1 involved the 1995 professional basketball playoffs; Study 2 involved the movement of economic indicators in a simulated economy. The results of both studies are consistent with the belief-based account, but violate the partition inequality implied by the classical theory of decision under uncertainty.

Key Words: Decision Making; Risk; Uncertainty; Expected Utility; Prospect Theory; Support Theory; Decision Weights; Judgment; Probability

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