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The impact of statistical learning on violations of the sure-thing principle

Nicky Nicholls (), Aylit Romm () and Alexander Zimper
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Nicky Nicholls: Department of Economics, University of Pretoria
Aylit Romm: School of Economic and Business Sciences, University of the Witwatersrand, Johannesburg, South Africa

No 201364, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper experimentally tests whether violations of Savage's (1954) subjective expected utility theory decrease if the ambiguity of an uncertain decision situation is reduced through statistical learning. Because our data does not show such a decrease, existing models which formalize ambiguity within an Anscombe-Aumann (1963) framework--thereby reducing to expected utility theory in the absence of ambiguity--are violated. In contrast, axiomatic models of prospect theory can accommodate our experimental findings because they allow for violations of von Neumann and Morgenstern's (1947) independence axiom whenever uncertain decision situations transform into risky decision situations for which probabilities are known.

Keywords: Prospect Theory; Choquet Expected Utility Theory; Multiple Priors Expected Utility Theory; Sure Thing Principle; Independence Axiom (search for similar items in EconPapers)
JEL-codes: C91 D81 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2013-10
New Economics Papers: this item is included in nep-upt
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Citations: View citations in EconPapers (3) Track citations by RSS feed

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Related works:
Journal Article: The impact of statistical learning on violations of the sure-thing principle (2015) Downloads
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