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Updated: Mar 1, 2026

Measuring the Subjective Value of Risky and Ambiguous Options using Experimental Economics and Functional MRI Methods
Published on: September 19, 2012
Noisy preferences in risky choice: A cautionary note
Sudeep Bhatia1, Graham Loomes2
1Department of Psychology, University of Pennsylvania.
Abstract:
We examine the effects of multiple sources of noise in risky decision making. Noise in the parameters that characterize an individual's preferences can combine with noise in the response process to distort observed choice proportions. Thus, underlying preferences that conform to expected value maximization can appear to show systematic risk aversion or risk seeking. Similarly, core preferences that are consistent with expected utility theory, when perturbed by such noise, can appear to display nonlinear probability weighting. For this reason, modal choices cannot be used simplistically to infer underlying preferences. Quantitative model fits that do not allow for both sorts of noise can lead to wrong conclusions. (PsycINFO Database Record
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