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Are preferences complete? An experimental measurement of indecisiveness under risk

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  • Eric Danan

    ()

  • Anthony Ziegelmeyer

    ()

Abstract

We propose an experimental design allowing a behavioral test of the axiom of completeness of individual preferences. The central feature of our design consists in enabling subjects to postpone commitment at a small cost. Our main result is that preferences are significantly incomplete. We use lotteries as choice alternatives and we find that risk aversion is globally robust to preference incompleteness.

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Bibliographic Info

Paper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2006-01.

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Length: 43 pages
Date of creation: Aug 2006
Date of revision:
Handle: RePEc:esi:discus:2006-01

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Keywords: Incomplete preferences; preference for flexibility; risk aversion; indecisiveness; indifference;

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References

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  1. Holt, Charles A, 1986. "Preference Reversals and the Independence Axiom," American Economic Review, American Economic Association, vol. 76(3), pages 508-15, June.
  2. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
  3. Sen, Amartya, 1988. "Freedom of choice : Concept and content," European Economic Review, Elsevier, vol. 32(2-3), pages 269-294, March.
  4. Starmer, Chris & Sugden, Robert, 1991. "Does the Random-Lottery Incentive System Elicit True Preferences? An Experimental Investigation," American Economic Review, American Economic Association, vol. 81(4), pages 971-78, September.
  5. Dhar, Ravi, 1997. " Consumer Preference for a No-Choice Option," Journal of Consumer Research, University of Chicago Press, vol. 24(2), pages 215-31, September.
  6. Luca Rigotti & Chris Shannon=20, 2002. "Uncertainty and Risk in Financial Markets," Game Theory and Information 0201001, EconWPA.
  7. Juan Dubra & Fabio Maccheroni & Efe Oki, 2001. "Expected utility theory without the completeness axiom," ICER Working Papers - Applied Mathematics Series 11-2001, ICER - International Centre for Economic Research.
  8. Beattie, Jane & Loomes, Graham, 1997. "The Impact of Incentives upon Risky Choice Experiments," Journal of Risk and Uncertainty, Springer, vol. 14(2), pages 155-68, March.
  9. Arlegi, Ricardo & Nieto, Jorge, 2001. "Incomplete preferences and the preference for flexibility," Mathematical Social Sciences, Elsevier, vol. 41(2), pages 151-165, March.
  10. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
  11. Eliaz, Kfir & Ok, Efe A., 2006. "Indifference or indecisiveness? Choice-theoretic foundations of incomplete preferences," Games and Economic Behavior, Elsevier, vol. 56(1), pages 61-86, July.
  12. Eddie Dekel, 1997. "A Unique Subjective State Space for Unforeseen Contingencies," Discussion Papers 1202, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  13. Robin Cubitt & Chris Starmer & Robert Sugden, 1998. "On the Validity of the Random Lottery Incentive System," Experimental Economics, Springer, vol. 1(2), pages 115-131, September.
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Citations

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Cited by:
  1. Itzhak Gilboa & Fabio Maccheroni & Massimo Marinacci & David Schmeidler, 2008. "Objective and Subjective Rationality in a Multiple Prior Model," Carlo Alberto Notebooks 73, Collegio Carlo Alberto, revised 2008.
  2. Gerasímou, Georgios, 2010. "Consumer theory with bounded rational preferences," Journal of Mathematical Economics, Elsevier, vol. 46(5), pages 708-714, September.
  3. Stefania Minardi & Andrei Savochkin, 2013. "Preferences With Grades of Indecisiveness," Carlo Alberto Notebooks 309, Collegio Carlo Alberto.
  4. Krahnen, Jan Pieter & Ockenfels, Peter & Wilde, Christian, 2014. "Measuring ambiguity aversion: A systematic experimental approach," SAFE Working Paper Series 55, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
  5. Evren, Özgür & Ok, Efe A., 2011. "On the multi-utility representation of preference relations," Journal of Mathematical Economics, Elsevier, vol. 47(4-5), pages 554-563.
  6. Simone Cerreia-Vioglio & Fabio Maccheroni & Massimo Marinacci & Luigi Montrucchio, 2011. "Ambiguity and Robust Statistics," Working Papers 382, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  7. Özgür Evren, 2012. "Scalarization Methods and Expected Multi-Utility Representations," Working Papers w0174, Center for Economic and Financial Research (CEFIR).
  8. Mc Kiernan, Daniel Kian, 2012. "Indifference, indecision, and coin-flipping," Journal of Mathematical Economics, Elsevier, vol. 48(4), pages 237-246.

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