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Unexpected Utility: Experimental Tests of Five Key Questions about Preferences over Risk


  • James Andreoni

    () (University of California - San Diego)

  • William T. Harbaugh

    () (University of Oregon)


Experimental work on preferences over risk has typically considered choices over a small number of discrete options, some of which involve no risk. Such experiments often demonstrate contradictions of standard expected utility theory. We reconsider this literature with a new preference elicitation device that allows a continuous choice space over only risky options. Our analysis assumes only that preferences depend on the probability p and prize x; U = u(p; x): We then allow subjects to choose p and x continuously on a linear budget constraint, r1p + r2x = m, so that all prospects with a nonzero expected value are risky. We test five of the most importantly debated questions about risk preferences: rationality, prospect theory asymmetry, the independence axiom, probability weighting, and constant relative risk aversion. Overall, we find that the expected utility model does unexpectedly well.

Suggested Citation

  • James Andreoni & William T. Harbaugh, 2010. "Unexpected Utility: Experimental Tests of Five Key Questions about Preferences over Risk," University of Oregon Economics Department Working Papers 2010-14, University of Oregon Economics Department, revised 03 Apr 2010.
  • Handle: RePEc:ore:uoecwp:2010-14

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