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Betting on Machina's reflection example: an experiment on ambiguity

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  • L’Haridon, Olivier
  • Placido, Lætitia

Abstract

In a recent paper, Machina (2008) suggested choice problems in the spirit of Ellsberg (1961) which challenge tail-separability, an implication of Choquet Expected Utility (CEU) to a similar extent as the Ellsberg paradox challenged the sure-thing principle implied by Subjective Expected Utility (SEU). We have tested choice behavior for bets on one of Machina’s choice problems, the reflection example. Our results indicate that tail-separability is violated by a large majority of subjects (over 70% of the sample). These empirical findings complement the theoretical analysis of Machina (2008) and, together, they confirm the need for new approaches in the analysis of ambiguity for decision making.

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Bibliographic Info

Paper provided by HEC Paris in its series Les Cahiers de Recherche with number 909.

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Length: 25 pages
Date of creation: 01 Oct 2008
Date of revision:
Handle: RePEc:ebg:heccah:0909

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Postal: HEC Paris, 78351 Jouy-en-Josas cedex, France
Web page: http://www.hec.fr/
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Keywords: ambiguity; Choquet expected utility; experimental economics;

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Citations

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Cited by:
  1. Blavatskyy, Pavlo R., 2013. "Two examples of ambiguity aversion," Economics Letters, Elsevier, Elsevier, vol. 118(1), pages 206-208.
  2. Ehud Lehrer & Roee Tepper, 2013. "Concave Expected Utility and Event Separability," Levine's Working Paper Archive 786969000000000809, David K. Levine.
  3. Aurelien Baillon & Olivier L'Haridon & Laetitia Placido, 2011. "Ambiguity Models and the Machina Paradoxes," American Economic Review, American Economic Association, American Economic Association, vol. 101(4), pages 1547-60, June.
  4. Nascimento, Leandro, 2012. "The ex-ante aggregation of opinions under uncertainty," Theoretical Economics, Econometric Society, Econometric Society, vol. 7(3), September.
  5. Kemel, Emmanuel & Paraschiv, Corina, 2013. "Prospect Theory for joint time and money consequences in risk and ambiguity," Transportation Research Part B: Methodological, Elsevier, Elsevier, vol. 56(C), pages 81-95.

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