An Allais paradox for generalized Expected Utility Theories ?

Laetitia Placido and Olivier L'Haridon
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Laetitia Placido: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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Abstract: This article reports the results of an experiment which aims at providing a test of ordinal independence, a necessary property of Generalized Expected Utility theories such as Rank-Dependent Expected Utility theory (RDEU). Our experiment is based on a modified version of the Allais paradox proposed by Machina, which allows testing ordinal independence restricted to simple lotteries, i.e. the tail-separability property. The results tend to support RDEU models since tail-separability is not violated by 71% of subjects while 73% violate the independence condition of classic Allais paradox. This confirms the relative theoretical soundness of RDEU models over Expected Utility model for the particular context of risk.

Keywords: Allais paradox; Rank-dependent utility (search for similar items in EconPapers)
Date: 2008-06-27
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Published in Economics Bulletin, 2008, 4 (19), pp.1-6

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Related works:
Journal Article: An allais paradox for generalized expected utility theories? (2008)
Working Paper: An Allais paradox for generalized Expected Utility Theories ? (2008)
Working Paper: An Allais paradox for generalized Expected Utility Theories ? (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00645882

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