The Becker-DeGroot-Marschak mechanism and nonexpected utility: A testable approach |
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Authors: | Zvi Safra Uzi Segal Avia Spivak |
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Institution: | 1. School of Business Administration, Tel Aviv University, Israel 2. Department of Economics, University of Toronto, 150 St. George Street, M5S 1A1, Toronto, Ontario, Canada 3. Department of Economics, Ben Gurion University, Israel
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Abstract: | The Becker-DeGroot-Marschak mechanism is widely used to elicit decision makers' selling prices of lotteries. This mechanism leads, however, to the preference reversal phenomenon, which seemed to indicate nontransitive preferences. To solve this puzzle, Karni and Safra (1987) introduced a new interpretation of this mechanism based on two-stage lotteries without the independence axiom. In this article, we suggest a set of empirically testable hypotheses based on their interpretation of the mechanism. One of these tests can be used to find the utility and the probability transformation functions of an anticipated utility maximizer.This article consists of an earlier paper with a similar title (University of Toronto WP #8809) and the paper Elicitation of Certainty Equivalents and the Becker-DeGroot-Marschak Mechanism.![rdquo](/content/G27N435K406H8663/xxlarge8221.gif) |
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Keywords: | Preference reversals nonexpected utility Becker-DeGroot-Marschak mechanism |
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