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Reconsidering the common ratio effect: The roles of compound independence, reduction, and coalescing

Schmidt, Ulrich; Seidl, Christian - Institut für Weltwirtschaft (IfW) - 2014

Common ratio effects should be ruled out if subjects' preferences satisfy compound independence, reduction of compound … lotteries, and coalescing. In other words, at least one of these axioms should be violated in order to generate a common ratio … observation of common ratio effects.We observe that compound independence and reduction of compound lotteries hold, whereas …

Persistent link: https://www.econbiz.de/10010886877

Reconsidering the common ratio effect: the roles of compound independence, reduction, and coalescing

Schmidt, Ulrich; Seidl, Christian - In: Theory and Decision 77 (2014) 3, pp. 323-339

Common ratio effects should be ruled out if subjects’ preferences satisfy compound independence, reduction of compound … lotteries, and coalescing. In other words, at least one of these axioms should be violated in order to generate a common ratio … observation of common ratio effects. We observe that compound independence and reduction of compound lotteries hold, whereas …

Persistent link: https://www.econbiz.de/10010959272

Reverse Common Ratio Effect

Blavatskyy, Pavlo R. - Institut für Volkswirtschaftslehre, … - 2010

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...

Persistent link: https://www.econbiz.de/10008625739

The Illusion of Irrationality

Kontek, Krzysztof - Volkswirtschaftliche Fakultät, … - 2009

This short paper shows that the Allais Paradox and the Common Ratio Effect regarded as classic examples of the violation of the Expected Utility Theory Axioms – may be easily explained by assuming that changes in wealth (i.e. gains and losses) are perceived in relative terms. The preference...

Persistent link: https://www.econbiz.de/10008458513

Decision Utility Theory: Back to von Neumann, Morgenstern, and Markowitz

Kontek, Krzysztof - Volkswirtschaftliche Fakultät, … - 2010

Prospect Theory (1979) and its Cumulative version (1992) argue for probability weighting to explain lottery choices. Decision Utility Theory presents an alternative solution, which makes no use of this concept. The new theory distinguishes decision and perception utility, postulates a double...

Persistent link: https://www.econbiz.de/10008756284

Theorem of existence of ruptures for mean values on finite numerical segments. Discrete case

Harin, Alexander - Volkswirtschaftliche Fakultät, … - 2011

The proof of the theorem of existence of the ruptures, namely the proof of maximality, is improved. The theorem may be used in economics and explain the well-known problems such as Allais’ paradox. Illustrated examples of ruptures are presented.

Persistent link: https://www.econbiz.de/10009403452

Asymmetric loss utility: an analysis of decision under risk

Strashny, Alex - EconWPA - 2004

This paper develops a utility model for evaluating lotteries. In estimating utility, risk averse people use an asymmetric loss function. Expected utility is seen as a special case that is a good approximation of the general case in some cases. The model resolves several paradoxes and makes...

Persistent link: https://www.econbiz.de/10005118587

Mathematical Basis of Quantum Decision Theory

Yukalov, Vyacheslav I.; Sornette, Didier

Following the ideas of Bohr, Von Neumann, and Benioff, we formulate quantum decision theory (QDT) as the quantum-mechanical theory of measurement for probability operators. QDT captures the effect of superposition of composite prospects, including many incorporated intentions. It is based on the...

Persistent link: https://www.econbiz.de/10005162985

Testing Independence Conditions in the Presence of Errors and Splitting Effects

Birnbaum, Michael H.; Schmidt, Ulrich; Schneider, Miriam D. - Institut für Weltwirtschaft (IfW) - 2010

This paper presents an experimental test of several independence conditions implied by expected utility and alternative models. We perform a repeated choice experiment and fit an error model that allows us to discriminate between true violations of independence and those that can be attributed...

Persistent link: https://www.econbiz.de/10008631614

Allais Paradoxes Can be Reversed by Presenting Choices in Canonical Split Form

Birnbaum, Michael H.; Schmidt, Ulrich - Institut für Weltwirtschaft (IfW) - 2010

coalescing, the assumption that when two branches lead to the same consequence, they can be combined by adding their …

Persistent link: https://www.econbiz.de/10008631616

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