The Becker-DeGroot-Marschak mechanism and generalized utility theories: Theoretical predictions and empirical observations |
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Authors: | L Robin Keller Uzi Segal Tan Wang |
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Institution: | (1) Graduate School of Management, University of California, 92717 Irvine, CA, USA;(2) Department of Economics, University of Toronto, 150 St. George Street, M5S1A1 Toronto, Ontario, Canada |
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Abstract: | Karni and Safra 8] prove that the Becker-DeGroot-Marschak mechanism reveals a decision maker's true certainty equivalent of a lottery if and only if he satisfies the independence axiom. Segal 17] claims that this mechanism may reveal a violation of the reduction of compound lotteries axiom. This paper empirically tests these two interpretations. Our results show that the second interpretation fits better with the collected data. Moreover, we show by means of some nonexpected utility examples that these results are consistent with a wide range of functionals. |
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Keywords: | Becker-DeGroot-Marschak mechanism nonexpected utility models |
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