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Probabilities vs Money: A Test of Some Fundamental Assumptions about Rational Decision Making

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Author Info
Loomes, Graham
Abstract

This paper describes an experiment where respondents were asked to tackle two decision tasks which were very similar in structure but which differed in that one problem involved direct money payoffs while the other involved payoffs in the form of probabilities of winning a given sum of money. According to most decision models, most risk averse individuals might be expected to behave quite differently under the two conditions. But the behavior actually observed does not accord with this expectation. The paper discusses possible reasons for this and the potential implications of such findings.

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Publisher Info
Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 108 (1998)
Issue (Month): 447 (March)
Pages: 477-89
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Handle: RePEc:ecj:econjl:v:108:y:1998:i:447:p:477-89

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  1. A. Rubinstein, 2000. "A,A,A,A,A or A,A,B,C,D? Over-Diversification in Repeated Decision Problems," Princeton Economic Theory Papers 00s13, Economics Department, Princeton University.
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  2. Peter Wakker & Veronika Köbberling & Christiane Schwieren, 2007. "Prospect-theory’s Diminishing Sensitivity Versus Economics’ Intrinsic Utility of Money: How the Introduction of the Euro can be Used to Disentangle the Two Empirically," Theory and Decision, Springer, vol. 63(3), pages 205-231, November. [Downloadable!] (restricted)
  3. Vital Anderhub & Simon Gächter & Manfred Königstein, 2002. "Efficient Contracting and Fair Play in a Simple Principal-Agent Experiment," Experimental Economics, Springer, vol. 5(1), pages 5-27, June. [Downloadable!] (restricted)
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