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Discovered preferences and the experimental evidence of violations of expected utility theory

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  • Robin Cubitt
  • Chris Starmer
  • Robert Sugden

Abstract

The discovered preference hypothesis appears to insulate expected utility theory (EU) from disconfirming experimental evidence. It asserts that individuals have coherent underlying preferences, which experiments may not reveal unless subjects have adequate opportunities and incentives to discover which actions best satisfy their preferences. We identify the confounding effects to be expected in experiments, were that hypothesis true, and consider how they might be controlled for. We argue for a design in which each subject faces just one distinct choice task for real. We review the results of some tests of EU which have used this design. These tests reveal the same violations of the independence axiom as other studies have found. We conclude that the discovered preference hypothesis does not justify scepticism about the reality of these effects.

Suggested Citation

  • Robin Cubitt & Chris Starmer & Robert Sugden, 2001. "Discovered preferences and the experimental evidence of violations of expected utility theory," Journal of Economic Methodology, Taylor & Francis Journals, vol. 8(3), pages 385-414.
  • Handle: RePEc:taf:jecmet:v:8:y:2001:i:3:p:385-414
    DOI: 10.1080/13501780110103748
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    12. James C Cox & Vjollca Sadiraj & Ulrich Schmidt, 2014. "Asymmetrically Dominated Choice Problems, the Isolation Hypothesis and Random Incentive Mechanisms," PLOS ONE, Public Library of Science, vol. 9(3), pages 1-3, March.
    13. 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..
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    20. Ferdinand M. Vieider & Mathieu Lefebvre & Ranoua Bouchouicha & Thorsten Chmura & Rustamdjan Hakimov & Michal Krawczyk & Peter Martinsson, 2015. "Common Components Of Risk And Uncertainty Attitudes Across Contexts And Domains: Evidence From 30 Countries," Journal of the European Economic Association, European Economic Association, vol. 13(3), pages 421-452, June.
    21. Holgar Müller & Eike Benjamin Kroll & Bodo Vogt, 2009. "Fact or Artifact Does the compromise effect occur when subjects face real consequences of their choices?," FEMM Working Papers 09009, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
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