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Testing for independence while allowing for probabilistic choice
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Loomes, Graham and Pogrebna, Ganna (2014) Testing for independence while allowing for probabilistic choice. Journal of Risk and Uncertainty, 49 (3). pp. 189-211. doi:10.1007/s11166-014-9205-0
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Official URL: http://dx.doi.org/10.1007/s11166-014-9205-0
Abstract
We propose a broad framework for individual choice under risk which can accommodate many stochastic formulations of various deterministic theories. Using this framework to guide an experimental design, we show that most individuals’ departures from the independence axiom cannot be explained by adding a ‘random noise’ term to a deterministic ‘core’ theory which incorporates this axiom. We also find behaviour that cannot be explained in terms of the standard assumptions of Cumulative Prospect Theory, often invoked to account for violations of independence. Our results suggest that ‘similarity’ effects may explain the data better.
| Item Type: | Journal Article | ||||
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| Subjects: | Q Science > QA Mathematics | ||||
| Divisions: | Faculty of Social Sciences > Economics Faculty of Social Sciences > Warwick Business School Faculty of Science, Engineering and Medicine > Engineering > WMG (Formerly the Warwick Manufacturing Group) |
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| Library of Congress Subject Headings (LCSH): | Decision making | ||||
| Journal or Publication Title: | Journal of Risk and Uncertainty | ||||
| Publisher: | Springer New York LLC | ||||
| ISSN: | 0895-5646 | ||||
| Official Date: | 23 December 2014 | ||||
| Dates: |
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| Volume: | 49 | ||||
| Number: | 3 | ||||
| Page Range: | pp. 189-211 | ||||
| DOI: | 10.1007/s11166-014-9205-0 | ||||
| Status: | Peer Reviewed | ||||
| Publication Status: | Published | ||||
| Access rights to Published version: | Open Access | ||||
| Funder: | Economic and Social Research Council (Great Britain) (ESRC), Leverhulme Trust (LT) | ||||
| Grant number: | RES-051-27-0248 (ESRC) |
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