The impact of statistical learning on violations of the sure-thing principle
AbstractThis paper experimentally tests whether violations of Savage's (1954) subjective expected utility theory decrease if the ambiguity of an uncertain decision situation is reduced through statistical learning. Because our data does not show such a decrease, existing models which formalize ambiguity within an Anscombe-Aumann (1963) framework--thereby reducing to expected utility theory in the absence of ambiguity--are violated. In contrast, axiomatic models of prospect theory can accommodate our experimental findings because they allow for violations of von Neumann and Morgenstern's (1947) independence axiom whenever uncertain decision situations transform into risky decision situations for which probabilities are known.
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Bibliographic InfoPaper provided by University of Pretoria, Department of Economics in its series Working Papers with number 201364.
Length: 26 pages
Date of creation: Oct 2013
Date of revision:
Prospect Theory; Choquet Expected Utility Theory; Multiple Priors Expected Utility Theory; Sure Thing Principle; Independence Axiom;
Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
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