The Relevance of Irrelevant Alternatives: An experimental investigation of risky choices
Experimental economists have discovered various violations of expected utility theory and offered alternative models that can explain laboratory results. This study discovers a new violation in risky choices that cannot be explained by theories like Prospect Theory, Disappoint- ment or Regret Theory. In an experimental setting using a between- subject design, the influence of a dominated alternative on certainty equivalents is shown. One group of subjects was offered a series of choices between a lottery ticket with a 50-50 chance of winning and a sure payoff. A second group was offered the same choice plus a third alternative, that as it turned out was not chosen by any participant. As a result, the average chosen sure payoff in the second group was higher than in the first group. That means, by adding a dominated alternative to a choice set, the certainty equivalent of a lottery is in- creased.
|Date of creation:||Sep 2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (0391) 67-18 584
Fax: (0391) 67-12 120
Web page: http://www.ww.uni-magdeburg.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David J. Butler & Graham C. Loomes, 2007. "Imprecision as an Account of the Preference Reversal Phenomenon," American Economic Review, American Economic Association, vol. 97(1), pages 277-297, March.
- Slovic, Paul & Lichtenstein, Sarah, 1983. "Preference Reversals: A Broader Perspective," American Economic Review, American Economic Association, vol. 73(4), pages 596-605, September.
- Itzhak Gilboa & David Schmeidler, 1992.
"Case-Based Decision Theory,"
994, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- David P. Myatt, 2004. "On the Theory of Strategic Voting," Economics Series Working Papers 186, University of Oxford, Department of Economics.
- Sugden Robert, 1993. "An Axiomatic Foundation for Regret Theory," Journal of Economic Theory, Elsevier, vol. 60(1), pages 159-180, June.
- Amos Tversky & Daniel Kahneman, 1979.
"Prospect Theory: An Analysis of Decision under Risk,"
Levine's Working Paper Archive
7656, David K. Levine.
- Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
- 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.
- Loomes, Graham & Starmer, Chris & Sugden, Robert, 1991. "Observing Violations of Transitivity by Experimental Methods," Econometrica, Econometric Society, vol. 59(2), pages 425-39, March.
- Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
- Machina, Mark J, 1982.
""Expected Utility" Analysis without the Independence Axiom,"
Econometric Society, vol. 50(2), pages 277-323, March.
- Mark J Machina, 1982. ""Expected Utility" Analysis without the Independence Axiom," Levine's Working Paper Archive 7650, David K. Levine.
- Loomes, Graham & Sugden, Robert, 1982. "Regret Theory: An Alternative Theory of Rational Choice under Uncertainty," Economic Journal, Royal Economic Society, vol. 92(368), pages 805-24, December.
- Colin Camerer, 1998. "Bounded Rationality in Individual Decision Making," Experimental Economics, Springer, vol. 1(2), pages 163-183, September.
When requesting a correction, please mention this item's handle: RePEc:mag:wpaper:08028. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guido Henkel)
If references are entirely missing, you can add them using this form.