Kiel Working Papers, Kiel Institute for World Economics
No 1615:
Allais Paradoxes Can be Reversed by Presenting Choices in Canonical Split Form
Michael H. Birnbaum and Ulrich Schmidt
Abstract: This paper tests Birnbaum’s (2004) theory that the
constant consequence paradoxes of Allais are due to violations of
coalescing, the assumption that when two branches lead to the same
consequence, they can be combined by adding their probabilities. Rank
dependent utility and cumulative prospect theory imply that the Allais
paradoxes are due to violations of restricted branch independence, a weaker
form of Savage’s sure thing axiom. This paper will analyze separately
whether erroneous random response variation might be responsible for these
two effects. When errors are factored out, violations of restricted branch
independence also remain significant and opposite from the direction of
Allais paradoxes, suggesting that models such as CPT that attribute Allais
paradoxes to violations of restricted branch independence should be
rejected
Keywords: Independence axiom, splitting effects, coalescing, errors, experiment; (follow links to similar papers)
JEL-Codes: C91,; D81; (follow links to similar papers)
28 pages, March 2010
Before downloading any of the electronic versions below
you should read our statement on
copyright.
Download GhostScript
for viewing Postscript files and the
Acrobat Reader for viewing and printing pdf files.
Downloadable files:
kwp_1615.pdf
Download Statistics
Report other problems with accessing this service to Sune Karlsson ()
or Helena Lundin ().
Programing by
Design Joakim Ekebom