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Uncertainty Equivalents: Testing the Limits of the Independence Axiom / James Andreoni, Charles Sprenger.
- Format:
- Book
- Author/Creator:
- Andreoni, James.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w17342.
- NBER working paper series no. w17342
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Other Title:
- Uncertainty Equivalents
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2011.
- Summary:
- There is convincing experimental evidence that Expected Utility fails, but when does it fail, how severely, and for what fraction of subjects? We explore these questions using a novel measure we call the uncertainty equivalent. We find Expected Utility performs well away from certainty, but fails near certainty for about 40% of subjects. Comparing non-Expected Utility theories, we strongly reject Prospect Theory probability weighting, we support disappointment aversion if amended to allow violations of stochastic dominance, but find the u-v model of a direct preference for certainty the most parsimonious approach.
- Notes:
- Print version record
- August 2011.
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