by William Clark

Abstract

This study uses Texas Hold’em poker to investigate decision making under uncertainty and the concept of probability weighting, where individuals may overvalue or undervalue uncertain outcomes. I conduct an experiment to assess Cumulative Prospect Theory’s relevance to subjective probabilities in poker by simplifying the game to compare complex and simple gamble evaluations. The research aims to understand how risk preferences and probability estimation without complete information are influenced by individuals’ poker experience and framing effects. We find that deviations from what theory predicts in the subjective-probability Poker frame can be explained well by the framing effects made in the decision maker’s editing phase. By examining the difference in the predictive power of decision making models in explicit vs subjective probability gambles, the study seeks to improve comprehension of cognitive processes in navigating uncertainty.

Professor Philipp Sadowski, Faculty Advisor
Professor Grace Kim, Faculty Advisor

JEL Codes: C91, D80, D91

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