Reverse common ratio effect |
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Authors: | Pavlo R Blavatskyy |
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Institution: | (1) Institute of Public Finance, University of Innsbruck, Universitaetsstrasse 15, A-6020 Innsbruck, Austria |
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Abstract: | The results of a new experimental study reveal highly systematic violations of expected utility theory. The pattern of these
violations is exactly the opposite of the classical common ratio effect discovered by Allais (1953). Two recent decision theories—stochastic expected utility theory (Blavatskyy 2007) and perceived relative argument model (Loomes 2008)—predicted the existence of a reverse common ratio effect. However, these theories can rationalize only one part of the new
experimental data reported in this paper. The other part appears to be neither predicted by existing theories nor documented
in the existing empirical studies. |
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