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An Expected Utility-User's Guide to Nonexpected Utility Experiments

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Author Info
William S. Neilson (Texas A&M University)

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Abstract

Recent experimental evidence suggests that standard expected utility is violated in a wide variety of ways: losses are treated differently from gains, people are generally risk averse over gains and risk loving over losses, fanning and curvature effects exist, problem representation matters, and preference reversals are pervasive. An effort is made to suggest how these effects will change results from models based on expected utility theory, and how researchers who use expected utility in their analysis should react to these findings.

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File URL: http://college.holycross.edu/eej/Volume19/V19N3P257_274.pdf
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Publisher Info
Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 19 (1993)
Issue (Month): 3 (Summer)
Pages: 257-274
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:eej:eeconj:v:19:y:1993:i:3:p:257-274

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Postal: Dr. Mary H. Lesser, Department of Economics, Iona College, New Rochelle, NY 10801-1890
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Related research
Keywords: Expected Utility Theory; Non Expected Utility; Risk Averse; Risk;

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Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

References listed on IDEAS
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  1. Pommerehne, Werner W & Schneider, Friedrich & Zweifel, Peter, 1982. "Economic Theory of Choice and the Preference Reversal Phenomenon: A Reexamination," American Economic Review, American Economic Association, vol. 72(3), pages 569-74, June. [Downloadable!] (restricted)
  2. Safra, Zvi & Segal, Uzi & Spivak, Avia, 1990. "Preference Reversal and Nonexpected Utility Behavior," American Economic Review, American Economic Association, vol. 80(4), pages 923-30, September.
  3. Starmer, Chris & Sugden, Robert, 1989. " Probability and Juxtaposition Effects: An Experimental Investigation of the Common Ratio Effect," Journal of Risk and Uncertainty, Springer, vol. 2(2), pages 159-78, June.
  4. Battalio, Raymond C & Kagel, John H & Jiranyakul, Komain, 1990. " Testing between Alternative Models of Choice under Uncertainty: Some Initial Results," Journal of Risk and Uncertainty, Springer, vol. 3(1), pages 25-50, March.
  5. Crawford, Vincent P., 1990. "Equilibrium without independence," Journal of Economic Theory, Elsevier, vol. 50(1), pages 127-154, February. [Downloadable!] (restricted)
  6. Chu, Yun-Peng & Chu, Ruey-Ling, 1990. "The Subsidence of Preference Reversals in Simplified and Marketlike Experimental Settings: A Note," American Economic Review, American Economic Association, vol. 80(4), pages 902-11, September. [Downloadable!] (restricted)
  7. Irwin, Julie R, et al, 1993. " Preference Reversals and the Measurement of Environmental Values," Journal of Risk and Uncertainty, Springer, vol. 6(1), pages 5-18, January.
  8. Machina, Mark J, 1982. ""Expected Utility" Analysis without the Independence Axiom," Econometrica, Econometric Society, vol. 50(2), pages 277-323, March. [Downloadable!] (restricted)
  9. Holt, Charles A, 1986. "Preference Reversals and the Independence Axiom," American Economic Review, American Economic Association, vol. 76(3), pages 508-15, June. [Downloadable!] (restricted)
  10. Loomes, Graham & Sugden, Robert, 1982. "Regret Theory: An Alternative Theory of Rational Choice under Uncertainty," Economic Journal, Royal Economic Society, vol. 92(368), pages 805-24, December. [Downloadable!] (restricted)
  11. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March. [Downloadable!] (restricted)
  12. Cox, James C & Epstein, Seth, 1989. "Preference Reversals without the Independence Axiom," American Economic Review, American Economic Association, vol. 79(3), pages 408-26, June. [Downloadable!] (restricted)
  13. Battalio, Raymond C & Kagel, John H & MacDonald, Don N, 1985. "Animals' Choices over Uncertain Outcomes: Some Initial Experimental Results," American Economic Review, American Economic Association, vol. 75(4), pages 597-613, September. [Downloadable!] (restricted)
  14. Grether, David M & Plott, Charles R, 1979. "Economic Theory of Choice and the Preference Reversal Phenomenon," American Economic Review, American Economic Association, vol. 69(4), pages 623-38, September. [Downloadable!] (restricted)
  15. Neilson, William S., 1992. "A mixed fan hypothesis and its implications for behavior toward risk," Journal of Economic Behavior & Organization, Elsevier, vol. 19(2), pages 197-211, October. [Downloadable!] (restricted)
  16. Harless, David W, 1992. "Actions versus Prospects: The Effect of Problem Representation on Regret," American Economic Review, American Economic Association, vol. 82(3), pages 634-49, June. [Downloadable!] (restricted)
  17. Harry Markowitz, 1952. "The Utility of Wealth," Journal of Political Economy, University of Chicago Press, vol. 60, pages 151. [Downloadable!] (restricted)
  18. Tversky, Amos & Slovic, Paul & Kahneman, Daniel, 1990. "The Causes of Preference Reversal," American Economic Review, American Economic Association, vol. 80(1), pages 204-17, March. [Downloadable!] (restricted)
  19. Kachelmeier, Steven J & Shehata, Mohamed, 1992. "Examining Risk Preferences under High Monetary Incentives: Experimental Evidence from the People's Republic of China," American Economic Review, American Economic Association, vol. 82(5), pages 1120-41, December. [Downloadable!] (restricted)
  20. Camerer, Colin F, 1989. " An Experimental Test of Several Generalized Utility Theories," Journal of Risk and Uncertainty, Springer, vol. 2(1), pages 61-104, April.
  21. Segal, Uzi, 1988. "Does the Preference Reversal Phenomenon Necessarily Contradict the Independence Axiom?," American Economic Review, American Economic Association, vol. 78(1), pages 233-36, March. [Downloadable!] (restricted)
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