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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

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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
Subjects: Q Science > QA Mathematics
Divisions: Faculty of Social Sciences > Economics
Faculty of Social Sciences > Warwick Business School
Faculty of Science > WMG (Formerly the Warwick Manufacturing Group)
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:
DateEvent
23 December 2014Published
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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