Decision Making Processes under Uncertainty: An Econometric Analysis.

This paper utilizes panel data from rural India on a daily rated labor market to examine how workers deal with the uncertainty which arises from the existence of involuntary unemployment. In particular, it measures the expected utility model with linear and nonlinear objective probabilities; the expected utility model with linear and nonlinear subjective probabilities. The econometric analysis indicates that the decision-making model is under uncertainty and that people work out their subjective probabilities through their past experiences. Finally, agents in the sample turn out to be risk-averse and not to have a positive reservation wage. Copyright 1995 by Royal Economic Society.