Dynamic Decision Making under Uncertainty: An Experimental Study of the Dynamic Competitive Firm

This paper reports on an experimental investigation into how well human subjects are able to tackle a reasonably complicated dynamic decision problem under risk. Subjects performed the experiment twice (a few days apart). It was found that subjects performed better (though not perfectly) on the second repetition and that the improvement was selective: subjects clearly found some aspects of the dynamic solution easier to approach than other. The experiment confirms that some subjects are better decisionmakers than others and that different parts of the problem are easier than others. It also suggests how actual behavior might be modeled. Copyright 1993 by Royal Economic Society.