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An Experimental Note on the Allais Paradox and Monetary Incentives

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  • Burke, Michael S
  • Carter, John R.
  • Gominiak, Robert D.
  • Ohl, Daniel F

Abstract

We test whether violations of expected utility theory in an Allais-paradox environment are sensitive to monetary incentives. Like Harrison (1994), we find that violations are significantly reduced when lotteries are real rather than hypothetical. Coauthors are John R. Carter, Robert D. Gominiak, and Daniel F. Ohl.

Suggested Citation

  • Burke, Michael S & Carter, John R. & Gominiak, Robert D. & Ohl, Daniel F, 1996. "An Experimental Note on the Allais Paradox and Monetary Incentives," Empirical Economics, Springer, vol. 21(4), pages 617-632.
    • Handle: RePEc:spr:empeco:v:21:y:1996:i:4:p:617-32
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    References listed on IDEAS

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    1. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-955, December.
    2. Harrison, Glenn W, 1989. "Theory and Misbehavior of First-Price Auctions," American Economic Review, American Economic Association, vol. 79(4), pages 749-762, September.
    3. Conlisk, John, 1989. "Three Variants on the Allais Example," American Economic Review, American Economic Association, vol. 79(3), pages 392-407, June.
    4. Wilcox, Nathaniel T, 1993. "Lottery Choice: Incentives, Complexity and Decision Time," Economic Journal, Royal Economic Society, vol. 103(421), pages 1397-1417, November.
    5. Smith, Vernon L, 1989. "Theory, Experiment and Economics," Journal of Economic Perspectives, American Economic Association, vol. 3(1), pages 151-169, Winter.
    6. Machina, Mark J, 1987. "Choice under Uncertainty: Problems Solved and Unsolved," Journal of Economic Perspectives, American Economic Association, vol. 1(1), pages 121-154, Summer.
    7. Harrison, Glenn W, 1994. "Expected Utility Theory and the Experimentalists," Empirical Economics, Springer, vol. 19(2), pages 223-253.
    8. Camerer, Colin F, 1989. "An Experimental Test of Several Generalized Utility Theories," Journal of Risk and Uncertainty, Springer, vol. 2(1), pages 61-104, April.
    9. Battalio, Raymond C & Kagel, John H & Jiranyakul, Komain, 1990. "Testing between Alternative Models of Choice under Uncertainty: Some Initial Results," Journal of Risk and Uncertainty, Springer, vol. 3(1), pages 25-50, March.
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    Citations

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    Cited by:

    1. Simone Cerreia‐Vioglio & David Dillenberger & Pietro Ortoleva, 2015. "Cautious Expected Utility and the Certainty Effect," Econometrica, Econometric Society, vol. 83, pages 693-728, March.
    2. Etchart-Vincent, Nathalie, 2007. "Expérimentation de laboratoire et économie : contre quelques idées reçues et faux problèmes," L'Actualité Economique, Société Canadienne de Science Economique, vol. 83(1), pages 91-116, mars.
    3. Ferdinand M. Vieider, 2008. "Separating Real Incentives and Accountability," Tinbergen Institute Discussion Papers 08-055/1, Tinbergen Institute.
    4. Marina Agranov & Pietro Ortoleva, 2017. "Stochastic Choice and Preferences for Randomization," Journal of Political Economy, University of Chicago Press, vol. 125(1), pages 40-68.
    5. Patrick DeJarnette & David Dillenberger & Daniel Gottlieb & Pietro Ortoleva, 2014. "Time Lotteries and Stochastic Impatience," PIER Working Paper Archive 18-021, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 13 Jun 2018.
    6. Steffen Huck & Wieland Müller, 2012. "Allais for all: Revisiting the paradox in a large representative sample," Journal of Risk and Uncertainty, Springer, vol. 44(3), pages 261-293, June.
    7. Andersen, Steffen & Harrison, Glenn W. & Lau, Morten Igel & Rutström, Elisabet E., 2010. "Behavioral econometrics for psychologists," Journal of Economic Psychology, Elsevier, vol. 31(4), pages 553-576, August.
    8. Patrick DeJarnette & David Dillenberger & Daniel Gottlieb & Pietro Ortoleva, 2015. "Time Lotteries," PIER Working Paper Archive 15-026, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 31 Jul 2015.
    9. Fan, Chinn-Ping, 2002. "Allais paradox in the small," Journal of Economic Behavior & Organization, Elsevier, vol. 49(3), pages 411-421, November.
    10. Ferdinand Vieider, 2011. "Separating real incentives and accountability," Experimental Economics, Springer;Economic Science Association, vol. 14(4), pages 507-518, November.
    11. Bayrak, Oben, 2016. "Another Solution for Allais Paradox: Preference Imprecision, Dispersion and Pessimism," MPRA Paper 71780, University Library of Munich, Germany.
    12. DeJarnette, Patrick & Dillenberger, David & Gottlieb, Daniel & Ortoleva, Pietro, 2020. "Time lotteries and stochastic impatience," LSE Research Online Documents on Economics 102564, London School of Economics and Political Science, LSE Library.
    13. Ulrich Schmidt & Christian Seidl, 2014. "Reconsidering the common ratio effect: the roles of compound independence, reduction, and coalescing," Theory and Decision, Springer, vol. 77(3), pages 323-339, October.
    14. Blavatskyy, Pavlo, 2018. "Fechner’s strong utility model for choice among n>2 alternatives: Risky lotteries, Savage acts, and intertemporal payoffs," Journal of Mathematical Economics, Elsevier, vol. 79(C), pages 75-82.
    15. Mark Schneider & Jonathan W. Leland & Nathaniel T. Wilcox, 2018. "Ambiguity framed," Journal of Risk and Uncertainty, Springer, vol. 57(2), pages 133-151, October.
      • Mark Schneider & Jonathan Leland & Nathaniel T. Wilcox, 2016. "Ambiguity Framed," Working Papers 16-11, Chapman University, Economic Science Institute.
    16. Florian Schneider & Martin Schonger, 2015. "An experimental test of the Anscombe-Aumann Monotonicity axiom," ECON - Working Papers 207, Department of Economics - University of Zurich, revised May 2017.
    17. Huck, S. & Müller, W., 2007. "Allais for All : Revisiting the Paradox," Discussion Paper 2007-99, Tilburg University, Center for Economic Research.
    18. Patrick DeJarnette & David Dillenberger & Daniel Gottlieb & Pietro Ortoleva, 2014. "Time Lotteries, Second Version," PIER Working Paper Archive 15-026v2, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 12 Jan 2018.
    19. Maria J. Ruiz Martos, 2018. "Sequential Common Consequence Effect and Incentives," ThE Papers 18/04, Department of Economic Theory and Economic History of the University of Granada..
    20. Glenn W. Harrison & J. Todd Swarthout, 2012. "The Independence Axiom and the Bipolar Behaviorist," Experimental Economics Center Working Paper Series 2012-01, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
    21. Patrick DeJarnette & David Dillenberger & Daniel Gottlieb & Pietro Ortoleva, 2020. "Time Lotteries and Stochastic Impatience," Econometrica, Econometric Society, vol. 88(2), pages 619-656, March.

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