First Degree Stochastic Dominance Violations: Decision Weights and Bounded Rationality  

Oleh:

Levy, Haim

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Economic Journal (EBSCO) vol. 118 no. 528 (Apr. 2008), page 759.
Topik: Stochastic Dominance; Violations; Decision Weights; Rationality; FSD
Fulltext: 759.pdf (496.14KB)

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Perpustakaan Pusat (Semanggi) Nomor Panggil: EE28.28 Non-tandon: 1 (dapat dipinjam: 0) Tandon: tidak ada

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Expected Utility Theory, Rank Dependent Expected Utility and Cumulative Prospect Theory imply no First Degree Stochastic Dominance (FSD) violations. Prospect Theory and Configural Weight models either allow for FSD violation or even predict this phenomenon. I find experimentally that FSD violations are not significant, and hence conclude that they are due to bounded rationality rather than to a systematic and predictable effect. Moreover, the more transparent the FSD, the less violations are observed, which supports the bounded rationality hypothesis. Therefore, based on the FSD violations observed in my experiments, the above three paradigms cannot be rejected.

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