Preference reversals occur when different (but formally equivalent) elicitation methods reveal conflicting preferences over two alternatives. This paper shows that when people have fuzzy preferences i.e. when they choose in a probabilistic manner, their observed decisions can generate systematic...

This paper proposes a new model that explains the violations of expected utility theory through the role of random errors. The paper analyzes decision making under risk when individuals make random errors when they compute expected utilities. Errors are drawn from the normal distribution, which...

An individual makes random errors when evaluating the expected utility of a risky lottery. Errors are symmetrically distributed around zero as long as an individual does not make transparent mistakes such as choosing a risky lottery over its highest possible outcome for certain. This stochastic...

Risk aversion is traditionally defined in the context of lotteries over monetary payoffs. This paper extends the notion of risk aversion to a more general setup where outcomes (consequences) may not be measurable in monetary terms and people may have fuzzy preferences over lotteries, i.e. they...

This paper presents a new method how to elicit the Bernoulli utility function over a wide range of monetary outcomes using approximation through Taylor expansion. The new method is applied to the natural experiment provided by the Swiss version of the television show Deal or No Deal.

Empirical research often requires a method how to convert a deterministic economic theory into an econometric model. A popular method is to add a random error term on the utility scale. This method, however, violates stochastic dominance. A modification of this method is proposed to avoid...

In three binary choice problems, people reveal a choice pattern which falsifies expected utility theory and many generalized non-expected utility theories. This new paradox challenges popular non-expected utility models analogously to how the Allais paradox challenged neoclassical expected...

The results of a new experimental study reveal highly systematic violations of expected utility theory. The pattern of these violations is exactly the opposite of the classical common ratio effect discovered by Allais (1953). Two recent decision theories— stochastic expected utility theory...

The results of a new experiment show that the Allais paradox (or, more generally, the common consequence effect) gets reversed, i.e. fanning-in choice patterns significantly outnumber fanning-out choice patterns. Revealed indifference curves fan in along the horizontal axis and hypotenuse of the...

A standard method to elicit certainty equivalents is the Becker-DeGroot-Marschak (BDM) procedure. We compare the standard BDM procedure and a BDM procedure with a restricted range of minimum selling prices that an individual can state. We find that elicited prices are systematically affected by...