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Discovered preferences and the experimental evidence of violations of expected utility theory

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Author Info

  • Robin Cubitt
  • Chris Starmer
  • Robert Sugden

Abstract

The discovered preference hypothesis appears to insulate expected utility theory (EU) from disconfirming experimental evidence. It asserts that individuals have coherent underlying preferences, which experiments may not reveal unless subjects have adequate opportunities and incentives to discover which actions best satisfy their preferences. We identify the confounding effects to be expected in experiments, were that hypothesis true, and consider how they might be controlled for. We argue for a design in which each subject faces just one distinct choice task for real. We review the results of some tests of EU which have used this design. These tests reveal the same violations of the independence axiom as other studies have found. We conclude that the discovered preference hypothesis does not justify scepticism about the reality of these effects.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Journal of Economic Methodology.

Volume (Year): 8 (2001)
Issue (Month): 3 ()
Pages: 385-414

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Handle: RePEc:taf:jecmet:v:8:y:2001:i:3:p:385-414

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Related research

Keywords: Discovered Preference; Common Consequence Effect; Common Ratio Effect; Single-TASK Design;

References

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Citations

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Cited by:
  1. Adam S. Booij & Bernard M.S. Van Praag & Gijs Van De Kuilen, 2009. "A Parametric Analysis of Prospect Theory's Functionals for the General Population," CESifo Working Paper Series 2609, CESifo Group Munich.
  2. Robin Cubitt & Maria Ruiz-Martos & Chris Starmer, 2012. "Are bygones bygones?," Theory and Decision, Springer, vol. 73(2), pages 185-202, August.
    • Robin Cubitt & Maria Ruiz-Martos & Chris Starmer, 2005. "Are bygones bygones?," Discussion Papers 2005-21, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    • Robin Cubitt & Maria Ruiz-Martos & Chris Starmer, 2010. "Are bygones bygones?," Discussion Papers 2010-01, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    • Robin Cubitt & Maria Ruiz-Martos & Chris Starmer, 2005. "Are bygones bygones?," Discussion Papers 2005-21, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    • Robin Cubitt & Maria Ruiz-Martos & Chris Starmer, 2010. "Are bygones bygones?," Discussion Papers 2010-01, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  3. McAlvanah, Patrick, 2009. "Are people more risk-taking in the presence of the opposite sex?," Journal of Economic Psychology, Elsevier, vol. 30(2), pages 136-146, April.
  4. Peter P. Wakker, 2008. "Explaining the characteristics of the power (CRRA) utility family," Health Economics, John Wiley & Sons, Ltd., vol. 17(12), pages 1329-1344.
  5. James C. Cox & Vjollca Sadiraj & Ulrich Schmidt, 2011. "Paradoxes and Mechanisms for Choice under Risk," Experimental Economics Center Working Paper Series 2011-07, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University, revised Mar 2014.
  6. Eike B. Kroll & Bodo Vogt, 2008. "The Relevance of Irrelevant Alternatives: An experimental investigation of risky choices," FEMM Working Papers 08028, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
  7. Holgar Müller & Eike Benjamin Kroll & Bodo Vogt, 2009. "Fact or Artifact Does the compromise effect occur when subjects face real consequences of their choices?," FEMM Working Papers 09009, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
  8. Gijs Kuilen & Peter Wakker, 2006. "Learning in the Allais paradox," Journal of Risk and Uncertainty, Springer, vol. 33(3), pages 155-164, December.
  9. Guala, Francesco & Mittone, Luigi, 2010. "Paradigmatic experiments: The Dictator Game," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(5), pages 578-584, October.
  10. Gijs Kuilen, 2009. "Subjective Probability Weighting and the Discovered Preference Hypothesis," Theory and Decision, Springer, vol. 67(1), pages 1-22, July.
  11. Gordon Menzies & Daniel Zizzo, 2006. "Exchange Rate Markets And Conservative Inferential Expectations," CAMA Working Papers 2007-02, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  12. Vieider, Ferdinand M. & Lefebvre, Mathieu & Bouchouicha, Ranoua & Chmura, Thorsten & Hakimov, Rustamdjan & Krawczyk, Michal & Martinsson, Peter, 2013. "Common components of risk and uncertainty attitudes across contexts and domains: Evidence from 30 countries," Discussion Papers, WZB Junior Research Group Risk and Development SP II 2013-402, Social Science Research Center Berlin (WZB).
  13. Robin Cubitt, 2005. "Experiments and the domain of economic theory," Journal of Economic Methodology, Taylor & Francis Journals, vol. 12(2), pages 197-210.

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