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Laetitia Placido and Olivier L'Haridon
''An allais paradox for generalized expected utility theories?''
( 2008, Vol. 4 No.19 )
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 theoritical soundness of RDEU models over Expected Utility model for the particular context of risk.
JEL: D8 - Information, Knowledge, and Uncertainty: General
C9 - Design of Experiments: General
Manuscript Received : Apr 09 2008 Manuscript Accepted : Jun 27 2008

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