UNIVERSITY PARK, Pa. — David Just, Susan Eckert Professor in Science and Business at Cornell University, will give the talk, “Lottery selection and probability weighting: testing robustness to extremes using the New York State Lotto,” at noon on Wednesday, Oct. 9, in 157 Hosler Building on the University Park campus. 

Expected utility theory is used as a tool for analyzing situations in which individuals must make a decision without knowing the outcomes. It is used to evaluate risk-taking where the probability of expected outcomes is calculated and weighed against the expected utility before making a decision.

“A large number of widely replicated laboratory experiments document systematic violations of expected utility theory leading to the proliferation of behavioral models of decision under risk including most prominently Kahneman and Tversky’s prospect theory,” Just said. “These alternatives to expected utility theory generally introduce additional degrees of freedom, allowing the model to fit the data. This raises the question of the degree to which behavioral models may be overfitting in the laboratory setting.”

The models are a better fit to laboratory experimental data but in his research Just asks if this is because they are fundamentally more consistent with behavioral motivations or is it simply because they offer additional degrees of freedom. Just tests this using an out of sample prediction approach. He estimates expected utility and probability weighting based models using standard laboratory experimental data. He then uses these estimates to predict behavior over choices based upon New York State Lottery games where probabilities are much smaller, and rewards can be much larger. Just finds expected utility estimates from the standard experiments to be far superior in their out of sample performance.

Just is the Susan Eckert Lynch Professor in Science and Business in the Charles H. Dyson School of Applied Economics and Management at Cornell University. He received his doctorate in 2001, and his master's degree in 1999, both in agricultural and resource economics from the University of California. Just uses the tools of economics and psychology to explore individual decisions in markets and their implications for well-being and policy.

The talk is part of the Initiative for Energy and Environmental Economics and Policy (EEEPI) fall Seminar Series. Learn more about EEEPI.