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A "Pseudo-Endowment" Effect, and Its Implications for Some Recent Nonexpected Utility Models

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  • Prelec, Drazen

Abstract

This article describes a modification of the Allais paradox that induces preferences inconsistent with two conditions weaker than the independence axiom, namely quasi-convexity (a special case of which is the betweenness axiom), and Hypothesis II of Machina (also called fanning-out). These violations can be formally derived from prospect theory by invoking nonlinear transformation of probability into decision weight. Copyright 1990 by Kluwer Academic Publishers

Suggested Citation

  • Prelec, Drazen, 1990. "A "Pseudo-Endowment" Effect, and Its Implications for Some Recent Nonexpected Utility Models," Journal of Risk and Uncertainty, Springer, vol. 3(3), pages 247-259, September.
    • Handle: RePEc:kap:jrisku:v:3:y:1990:i:3:p:247-59
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    Cited by:

    1. Vadym Lepetyuk & Christian A. Stoltenberg, 2012. "Reconciling consumption inequality with income inequality," Working Papers. Serie AD 2012-19, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    2. Ulrich Schmidt & Stefan Trautmann, 2014. "Common consequence effects in pricing and choice," Theory and Decision, Springer, vol. 76(1), pages 1-7, January.
    3. Simone Cerreia‐Vioglio & David Dillenberger & Pietro Ortoleva, 2015. "Cautious Expected Utility and the Certainty Effect," Econometrica, Econometric Society, vol. 83, pages 693-728, March.
    4. Soham R. Phade & Venkat Anantharam, 2020. "Black-Box Strategies and Equilibrium for Games with Cumulative Prospect Theoretic Players," Papers 2004.09592, arXiv.org.
    5. Harless, David W & Camerer, Colin F, 1994. "The Predictive Utility of Generalized Expected Utility Theories," Econometrica, Econometric Society, vol. 62(6), pages 1251-1289, November.
    6. James Cox & Vjollca Sadiraj & Ulrich Schmidt, 2015. "Paradoxes and mechanisms for choice under risk," Experimental Economics, Springer;Economic Science Association, vol. 18(2), pages 215-250, June.
    7. Bruno S. Frey, "undated". "Knight Fever towards an Economics of Awards," IEW - Working Papers 239, Institute for Empirical Research in Economics - University of Zurich.
    8. Pavlo R. Blavatskyy & Francesco Feri, 2018. "Violations of betweenness and choice shifts in groups," Theory and Decision, Springer, vol. 85(3), pages 321-331, October.
    9. Mehrez, Abraham, 1997. "The interface between OR/MS and decision theory," European Journal of Operational Research, Elsevier, vol. 99(1), pages 38-47, May.
    10. John Hey, "undated". "Experiments and the Economics of Individual Decision Making Under Risk and Uncertainty," Discussion Papers 95/49, Department of Economics, University of York.
    11. Blavatskyy, Pavlo R., 2006. "Violations of betweenness or random errors?," Economics Letters, Elsevier, vol. 91(1), pages 34-38, April.
    12. Graham Loomes & Ganna Pogrebna, 2014. "Testing for independence while allowing for probabilistic choice," Journal of Risk and Uncertainty, Springer, vol. 49(3), pages 189-211, December.
    13. Pavlo Blavatskyy, 2004. "Axiomatization of a Preference for Most Probably Winner," CERGE-EI Working Papers wp226, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    14. Pavlo R. Blavatskyy, "undated". "A Stochastic Expected Utility Theory," IEW - Working Papers 231, Institute for Empirical Research in Economics - University of Zurich.
    15. Schmidt, Ulrich & Trautmann, Stefan T., 2010. "Common consequence effects with pricing data," Kiel Working Papers 1610, Kiel Institute for the World Economy (IfW Kiel).
    16. William S. Neilson, 1993. "An Expected Utility-User's Guide to Nonexpected Utility Experiments," Eastern Economic Journal, Eastern Economic Association, vol. 19(3), pages 257-274, Summer.
    17. Pavlo R. Blavatskyy, "undated". "Axiomatization of a Preference for Most Probable Winner," IEW - Working Papers 230, Institute for Empirical Research in Economics - University of Zurich.
    18. Humphrey, Steven J., 2000. "The common consequence effect: testing a unified explanation of recent mixed evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 41(3), pages 239-262, March.
    19. Pavlo Blavatskyy, 2018. "A second-generation disappointment aversion theory of decision making under risk," Theory and Decision, Springer, vol. 84(1), pages 29-60, January.

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