Testing the Intransitivity Explanation of the Allais Paradox

Ebbe Groes, Hans Jørgen Jacobsen, Birgitte Sloth () and Torben Tranaes ()
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Ebbe Groes: Institute of Economics, University of Copenhagen
Hans Jørgen Jacobsen: Institute of Economics, University of Copenhagen

No 1998-18, CIE Discussion Papers from University of Copenhagen. Department of Economics. Centre for Industrial Economics

Abstract: This paper uses a two-dimensional version of a standard common consequence experiment to test the intransitivity explanation of Allais-paradox-type violations of expected utility theory. We compare the common consequence effect of two choice problems differing only with respect to whether alternatives are statistically correlated or independent. We framed the experiment so that intransitive preferences could explain violating behavior when alternatives are independent, but not when they are correlated. We found the same pattern of violation in the two cases. This is evidence against intransitivity as an explanation of the Allais Paradox. The question whether violations of expected utility are mainly due to intransitivity or to violation of independence is important since it is exactly on this issue the main new decision theories differ.

Keywords: Allais paradox; common consequence experiment; sure-thing principle; intransitive preferences (search for similar items in EconPapers)
JEL-codes: C9 D8 (search for similar items in EconPapers)
Pages: 17 pages
Date: 1997-03, Revised 1998-10
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Published in: Theory and Decision 47, 229-245 (1999)

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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuieci:1998-18

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