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Testing expected utility in the presence of errors

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Author Info

  • Ulrich Schmidt
  • Tibor Neugebauer

Abstract

One possible conclusion from recent experimental research on decision making under risk is that observed behaviour can be reasonably accommodated by expected utility plus an error term. This conclusion implies that the violation rate of expected utility should decrease if errors are excluded. This article reports on an experiment which investigates this implication by presenting the same choice problems to subjects three times. The results show that the exclusion of errors leads to a significant reduction of the violation rate for most of the cases. This observation can be regarded as supporting evidence for expected utility plus error term. Copyright 2007 The Author(s). Journal compilation Royal Economic Society 2007.

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Bibliographic Info

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

Volume (Year): 117 (2007)
Issue (Month): 518 (03)
Pages: 470-485

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Handle: RePEc:ecj:econjl:v:117:y:2007:i:518:p:470-485

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Cited by:
  1. Gaudecker, Hans-Martin von & van Soest, Arthur & Wengström, Erik, 2008. "Selection and Mode Effects in Risk Preference Elicitation Experiments," IZA Discussion Papers 3321, Institute for the Study of Labor (IZA).
  2. Binmore, Ken & Shaked, Avner, 2010. "Experimental economics: Where next?," Journal of Economic Behavior & Organization, Elsevier, vol. 73(1), pages 87-100, January.
  3. Kocher, Martin G. & Pahlke, Julius & Trautmann, Stefan T., 2011. "Tempus Fugit: Time Pressure in Risky Decisions," Discussion Papers in Economics 12221, University of Munich, Department of Economics.
  4. Aurora García-Gallego & Nikolaos Georgantzís & Daniel Navarro-Martínez & Gerardo Sabater-Grande, 2011. "The stochastic component in choice and regression to the mean," Theory and Decision, Springer, vol. 71(2), pages 251-267, August.
  5. Gijs Kuilen & Peter Wakker, 2006. "Learning in the Allais paradox," Journal of Risk and Uncertainty, Springer, vol. 33(3), pages 155-164, December.
  6. Pavlo Blavatskyy, 2012. "Probabilistic choice and stochastic dominance," Economic Theory, Springer, vol. 50(1), pages 59-83, May.
  7. Pavlo Blavatskyy, 2014. "Stronger utility," Theory and Decision, Springer, vol. 76(2), pages 265-286, February.

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