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A simple test for the violation of the non-satiation axiom under uncertainty: The theory

Author

Listed:
  • Robert Sproule

    (Bishop's University)

  • Calin Valsan

    (Bishop's University)

Abstract

The validity of most axioms which underlie the expected utility model has been the object of intense empirical testing. These include the independence, betweenness, transitivity, monotonicity, reduction, and non-satiation axioms. The sole, present-day test for the non-satiation axiom is predicated on the first-degree stochastic dominance theorem. This paper outlines the theory for a new, alternative test – one that is predicated on a mean-variance-preserving transformation of a one-trial binomial distribution.

Suggested Citation

  • Robert Sproule & Calin Valsan, 2009. "A simple test for the violation of the non-satiation axiom under uncertainty: The theory," Economics Bulletin, AccessEcon, vol. 29(4), pages 2656-2664.
    • Handle: RePEc:ebl:ecbull:eb-09-00437
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    File URL: http://www.accessecon.com/Pubs/EB/2009/Volume29/EB-09-V29-I4-P18.pdf
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    Cited by:

    1. Olila, Dennis & Nyikal, Rose & Otieno, David, 2015. "What Do Farmers Want from Crop Insurance Schemes: A Stated Preference Approach," 2015 Conference, August 9-14, 2015, Milan, Italy 212596, International Association of Agricultural Economists.

    More about this item

    Keywords

    Von Neumann-Morgenstern Utility Function; Expected Utility Hypothesis; Non-Satiation Axiom; Binomial Trial; Mean-variance-preserving transformation;
    All these keywords.

    JEL classification:

    • B4 - Schools of Economic Thought and Methodology - - Economic Methodology
    • D0 - Microeconomics - - General

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