The stochastic component in choice and regression to the mean

García-Gallego, A., Georgantzis, N., Navarro-Martínez, D. and Sabater-Grande, G. (2011) The stochastic component in choice and regression to the mean. Theory and Decision, 71 (2). pp. 251-267. ISSN 0040-5833 doi: 10.1007/s11238-010-9223-6

Abstract/Summary

In this article, we illustrate experimentally an important consequence of the stochastic component in choice behaviour which has not been acknowledged so far. Namely, its potential to produce ‘regression to the mean’ (RTM) effects. We employ a novel approach to individual choice under risk, based on repeated multiple-lottery choices (i.e. choices among many lotteries), to show how the high degree of stochastic variability present in individual decisions can distort crucially certain results through RTM effects. We demonstrate the point in the context of a social comparison experiment.