Reverse Common Ratio Effect

Pavlo R. Blavatskyy

No 478, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich

Abstract: 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 (Blavatskyy, 2007) and perceived relative argument model (Loomes, 2008)�predicted the existence of a reverse common ratio effect. However, these theories can rationalize only one part of the new experimental data reported in this paper. The other part appears to be neither predicted by existing theories nor documented in the existing empirical studies.

Keywords: Expected utility theory; common ratio effect; Allais paradox; risk; experiment (search for similar items in EconPapers)
JEL-codes: C91 D81 (search for similar items in EconPapers)
Date: 2010-02
New Economics Papers: this item is included in nep-exp and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:zur:iewwpx:478

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