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Does the Allais Paradox Contradict the Independence Axiom? Experimental Reconsiderations

Author

Listed:
  • : Ebbe Hendon

    (Institute of Economics, University of Copenhagen)

  • Hans Jørgen Jacobsen

    (Institute of Economics, University of Copenhagen)

  • Birgitte Sloth

    (Institute of Economics, University of Copenhagen)

  • Torben Tranæs

    (Institute of Economics, University of Copenhagen)

Abstract

The so-called Allais Paradox (Allais (1953)) has been interpreted as a violation of the independence axiom of Savage (1954). Considering the standard experiments performed this inference is questionable. Rather the paradoxical behavior represents evidence against the expected utility hypothesis as a whole. If the independence axiom is to be tested, then subjects should not regard the alternatives given as statistically independent. We have performed a series of parallel experiments to investigate this critique. Our results suggest that the independence axiom is indeed violated systematically, and that the question of statistical dependency does not matter for the Allais-type paradoxical behavior.

Suggested Citation

  • : Ebbe Hendon & Hans Jørgen Jacobsen & Birgitte Sloth & Torben Tranæs, "undated". "Does the Allais Paradox Contradict the Independence Axiom? Experimental Reconsiderations," Discussion Papers 93-09, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:9309
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