In the framework of expected utility theory, risk attitudes are entirely capturedby the curvature of the utility … thismodication, one question arises naturally: since both utility and probability weight-ing determine the attitude towards risk …, what is the relation between them? Weran a controlled laboratory experiment to answer this question. Our ndings suggestthat …

In this paper, we experimentally test the Modigliani-Miller theorem. Applying ageneral equilibrium approach and not …-Miller theorem, experimental subjects well recognizedthe increased systematic risk of the equity with increasing leverage and … accordinglydemanded higher rate of return. Yet, this adjustment was not perfect: subjects un-derestimated the systematic risk of low …