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No 909:
Betting on Machina's reflection example: an experiment on ambiguity

Olivier L’Haridon and Lætitia Placido

Abstract: In a recent paper, Machina (2008) suggested choice problems in the spirit of Ellsberg (1961) which challenge tail-separability, an implication of Choquet Expected Utility (CEU) to a similar extent as the Ellsberg paradox challenged the sure-thing principle implied by Subjective Expected Utility (SEU). We have tested choice behavior for bets on one of Machina’s choice problems, the reflection example. Our results indicate that tail-separability is violated by a large majority of subjects (over 70% of the sample). These empirical findings complement the theoretical analysis of Machina (2008) and, together, they confirm the need for new approaches in the analysis of ambiguity for decision making.

Keywords: ambiguity; Choquet expected utility; experimental economics; (follow links to similar papers)

JEL-Codes: C90; D81; (follow links to similar papers)

25 pages, October 1, 2008

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