Does the Allais Paradox Contradict the Independence Axiom? Experimental Reconsiderations

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

No 93-09, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: The so-called Allais Paradox (Allais (1953)) has been interpreted as a violation of the independence axiom of Savage (1954). Considering the standard experiments performed this inference is questionable. Rather the paradoxical behavior represents evidence against the expected utility hypothesis as a whole. If the independence axiom is to be tested, then subjects should not regard the alternatives given as statistically independent. We have performed a series of parallel experiments to investigate this critique. Our results suggest that the independence axiom is indeed violated systematically, and that the question of statistical dependency does not matter for the Allais-type paradoxical behavior.

Pages: 11 pages
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