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Testing independence conditions in the presence of errors and splitting effects

Author

Listed:
  • Michael H. Birnbaum

    () (California State University (CSUF))

  • Ulrich Schmidt

    () (University of Kiel
    Kiel Institute for the World Economy)

  • Miriam D. Schneider

    (University of Kiel)

Abstract

This paper presents experimental tests of several independence conditions implied by expected utility and alternative models. We perform repeated choice experiments and fit an error model that allows us to discriminate between true violations of independence and those that can be attributed to errors. In order to investigate the role of event splitting effects, we present each choice problem not only in coalesced form (as in many previous studies) but also in split forms. It turns out previously reported violations of independence and splitting effects remain significant even when controlling for errors. However, splitting effects have a substantial influence on tests of independence conditions. When choices are presented in canonical split form, in which probabilities on corresponding probability-consequence ranked branches are equal, violations of the properties tested could be reduced to insignificance or even reversed.

Suggested Citation

  • Michael H. Birnbaum & Ulrich Schmidt & Miriam D. Schneider, 2017. "Testing independence conditions in the presence of errors and splitting effects," Journal of Risk and Uncertainty, Springer, vol. 54(1), pages 61-85, February.
  • Handle: RePEc:kap:jrisku:v:54:y:2017:i:1:d:10.1007_s11166-017-9251-5
    DOI: 10.1007/s11166-017-9251-5
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    Cited by:

    1. Adrian Bruhin & Maha Manai & Luis Santos-Pinto, 2018. "Risk and Rationality:The Relative Importance of Probability Weighting and Choice Set Dependence," Cahiers de Recherches Economiques du Département d'économie 18.04, Université de Lausanne, Faculté des HEC, Département d’économie.
    2. Adrian Bruhin & Maha Manai & Luis Santos-Pinto, 2019. "Risk and Rationality:The Relative Importance of Probability Weighting and Choice Set Dependence," Cahiers de Recherches Economiques du Département d'économie 19.01new, Université de Lausanne, Faculté des HEC, Département d’économie.
    3. Michael H. Birnbaum & Edika G. Quispe-Torreblanca, 2018. "TEMAP2.R: True and Error model analysis program in R," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 13(5), pages 428-440, September.
    4. Andreas Glöckner & Baiba Renerte & Ulrich Schmidt, 2020. "Violations of coalescing in parametric utility measurement," Theory and Decision, Springer, vol. 89(4), pages 471-501, November.
    5. Adrian Bruhin & Maha Manai & Luis Santos-Pinto, 2018. "Risk and Rationality:The Relative Importance of Probability Weighting and Choice Set Dependence," Cahiers de Recherches Economiques du Département d'économie 18.04, Université de Lausanne, Faculté des HEC, Département d’économie.
    6. Michael H. Birnbaum, 2019. "Bayesian and frequentist analysis of True and Error models," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 14(5), pages 608-616, September.
    7. Michael D. Lee, 2018. "Bayesian methods for analyzing true-and-error models," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 13(6), pages 622-635, November.

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    More about this item

    Keywords

    Coalescing; Errors; Expected utility; Independence axiom; Prospect theory; Risky decision making; Splitting effects;
    All these keywords.

    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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