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Reverse Common Ratio Effect


Blavatskyy, Pavlo R (2010). Reverse Common Ratio Effect. Working paper series / Institute for Empirical Research in Economics No. 478, University of Zurich.

Abstract

The results of a new experimental study reveal highly systematic violations ofnexpected utility theory. The pattern of these violations is exactly the opposite of thenclassical common ratio effect discovered by Allais (1953). Two recent decision theories—nstochastic expected utility theory (Blavatskyy, 2007) and perceived relative argumentnmodel (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.

The results of a new experimental study reveal highly systematic violations ofnexpected utility theory. The pattern of these violations is exactly the opposite of thenclassical common ratio effect discovered by Allais (1953). Two recent decision theories—nstochastic expected utility theory (Blavatskyy, 2007) and perceived relative argumentnmodel (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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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
Dewey Decimal Classification:330 Economics
Language:English
Date:February 2010
Deposited On:29 Nov 2011 15:09
Last Modified:05 Apr 2016 15:09
Series Name:Working paper series / Institute for Empirical Research in Economics
ISSN:1424-0459
Official URL:http://www.econ.uzh.ch/wp.html
Permanent URL: http://doi.org/10.5167/uzh-51737

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