Dynamic Choice And The Common Ratio Effect: An Experimental Investigation  

Oleh:

Cubitt, Robin P. ; Starmer, Chris ; Sugden, Robert

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Economic Journal (EBSCO) vol. 108 no. 450 (Sep. 1998), page 1380.
Fulltext: 1380.pdf (232.6KB)

Isi artikel

The common ratio effect is a well-attested violation of expected utility theory. This paper uses four principles of dynamic choice to characterise alternative theoretical strategies for explaining the effect. It reports an experiment which tests these principles and, by implication, several well-known accounts of the common ratio effect. Unlike previous work, the experimental design uses real ®nancial incentives without presupposing any dynamic choice principles. We ®nd violation of a principle of `timing independence', which is part of most existing theories of dynamic choice. We examine the implications of this ®nding for decision theory and economics.

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