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Testing the Intransitivity Explanation of the Allais Paradox

Author

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  • Ebbe Groes
  • Hans Jacobsen
  • Birgitte Sloth
  • Torben Tranæs

Abstract

This paper uses a two-dimensional version of a standard common consequence experiment to test the intransitivity explanation of Allais-paradox-type violations of expected utility theory. We compare the common consequence effect of two choice problems differing only with respect to whether alternatives are statistically correlated or independent. We framed the experiment so that intransitive preferences could explain violating behavior when alternatives are independent, but not when they are correlated. We found the same pattern of violation in the two cases. This is evidence against intransitivity as an explanation of the Allais Paradox. The question whether violations of expected utility are mainly due to intransitivity or to violation of independence is important since it is exactly on this issue the main new decision theories differ.
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Suggested Citation

  • Ebbe Groes & Hans Jacobsen & Birgitte Sloth & Torben Tranæs, 1999. "Testing the Intransitivity Explanation of the Allais Paradox," Theory and Decision, Springer, vol. 47(3), pages 229-245, December.
    • Handle: RePEc:kap:theord:v:47:y:1999:i:3:p:229-245
    DOI: 10.1023/A:1005177230444
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    1. Han Bleichrodt & Ulrich Schmidt, 2002. "A Context-Dependent Model of the Gambling Effect," Management Science, INFORMS, vol. 48(6), pages 802-812, June.

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    More about this item

    Keywords

    Allais paradox; Common consequence experiment; Sure-thing principle; Intransitive preferences;
    All these keywords.

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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