Kiel Working Papers, Kiel Institute for World Economics
No 1614:
Testing Independence Conditions in the Presence of Errors and Splitting Effects
Michael H. Birnbaum, Ulrich Schmidt and Miriam D. Schneider
Abstract: This paper presents an experimental test of several
independence conditions implied by expected utility and alternative models.
We perform a repeated choice experiment and fit an error model that allows
us to discriminate between true violations of independence and those that
can be attributed to errors. In order to investigate the role of event
splitting effects, we present each choice problem not only in coalesced
form (as in most previous studies) but also in split form. It turns out
previously reported violations of independence and splitting effects remain
significant even when controlling for errors. Splitting effects have a
substantial influence on the tests of independence conditions. When choices
are presented in canonical split form, in which probabilities on
corresponding probability-consequence ranked branches are equal, violations
of the independence conditions we tested become either reversed,
insignificant or unsystematic
Keywords: Independence axiom, splitting effects, coalescing, errors, experiment; (follow links to similar papers)
JEL-Codes: C91,; D81; (follow links to similar papers)
27 pages, March 2010
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