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An Experimental Note on the Allais Paradox and Monetary Incentives

Author Info

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

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    Article provided by Springer in its journal Empirical Economics.

    Volume (Year): 21 (1996)
    Issue (Month): 4 ()
    Pages: 617-32

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    Handle: RePEc:spr:empeco:v:21:y:1996:i:4:p:617-32
    Contact details of provider: Web page: http://www.springer.com

    Order Information: Web: http://www.springer.com/economics/econometrics/journal/181/PS2

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    1. Machina, Mark J, 1987. "Choice under Uncertainty: Problems Solved and Unsolved," Journal of Economic Perspectives, American Economic Association, vol. 1(1), pages 121-54, Summer.
    2. Harrison, Glenn W, 1994. "Expected Utility Theory and the Experimentalists," Empirical Economics, Springer, vol. 19(2), pages 223-53.
    3. Wilcox, Nathaniel T, 1993. "Lottery Choice: Incentives, Complexity and Decision Time," Economic Journal, Royal Economic Society, vol. 103(421), pages 1397-1417, November.
    4. Harrison, Glenn W, 1989. "Theory and Misbehavior of First-Price Auctions," American Economic Review, American Economic Association, vol. 79(4), pages 749-62, September.
    5. 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.
    6. 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.
    7. Conlisk, John, 1989. "Three Variants on the Allais Example," American Economic Review, American Economic Association, vol. 79(3), pages 392-407, June.
    8. Smith, Vernon L, 1989. "Theory, Experiment and Economics," Journal of Economic Perspectives, American Economic Association, vol. 3(1), pages 151-69, Winter.
    9. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-55, December.
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    Cited by:

    1. 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.
    2. 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.
    3. Simone Cerreia-Vioglio & David Dillenberger & Pietro Ortoleva, 2014. "Cautious Expected Utility and the Certainty Effect," PIER Working Paper Archive 14-005, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    4. 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.
    5. Ferdinand M. Vieider, 2008. "Separating Real Incentives and Accountability," Tinbergen Institute Discussion Papers 08-055/1, Tinbergen Institute.
    6. Andersen, Steffen & Harrison, Glenn W. & Lau, Morten Igel & Rutström, Elisabeth E., 2007. "Behavioral Econometrics for Psychologists," Working Papers 18-2007, Copenhagen Business School, Department of Economics.
    7. Ferdinand Vieider, 2011. "Separating real incentives and accountability," Experimental Economics, Springer, vol. 14(4), pages 507-518, November.
    8. Huck, S. & Müller, W., 2007. "Allais for All : Revisiting the Paradox," Discussion Paper 2007-99, Tilburg University, Center for Economic Research.
    9. Bayrak, Oben, 2016. "Another Solution for Allais Paradox: Preference Imprecision, Dispersion and Pessimism," MPRA Paper 71780, University Library of Munich, Germany.
    10. Florian Schneider & Martin Schonger, 2015. "Allais at the Horse Race: testing models of ambiguity aversion," ECON - Working Papers 207, Department of Economics - University of Zurich.
    11. Fan, Chinn-Ping, 2002. "Allais paradox in the small," Journal of Economic Behavior & Organization, Elsevier, vol. 49(3), pages 411-421, November.

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