How common is the common-ratio effect?

Pavlo Blavatskyy (), Valentyn Panchenko () and Andreas Ortmann
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Pavlo Blavatskyy: Montpellier Business School
Valentyn Panchenko: UNSW Business School, UNSW

Experimental Economics, 2023, vol. 26, issue 2, No 2, 253-272

Abstract: Abstract The common-ratio effect and the Allais Paradox (common-consequence effect) are the two best‐known violations of Expected Utility Theory. We reexamine data from 39 articles reporting experiments (143 designs/parameterizations, 14,909 observations) and find that the common-ratio effect is systematically affected by experimental design and implementation choices. The common-ratio effect is more likely to be observed in experiments with a low common-ratio factor, a high ratio of middle to highest outcome, when lotteries are presented as simple probability distributions (not in a compound/frequency form), and with high hypothetical incentives.

Keywords: Decision under risk; Experimental practices; Common-ratio effect; Expected Utility Theory; Allais Paradox (search for similar items in EconPapers)
JEL-codes: D01 D81 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10683-022-09761-y

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