Journal of Risk and Uncertainty

, Volume 3, Issue 2, pp 177–190 | Cite as

The Becker-DeGroot-Marschak mechanism and nonexpected utility: A testable approach

  • Zvi Safra
  • Uzi Segal
  • Avia Spivak
Article

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.

Key words

Preference reversals nonexpected utility Becker-DeGroot-Marschak mechanism 

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Copyright information

© Kluwer Academic Publishers 1990

Authors and Affiliations

  • Zvi Safra
    • 1
  • Uzi Segal
    • 2
  • Avia Spivak
    • 3
  1. 1.School of Business AdministrationTel Aviv UniversityIsrael
  2. 2.Department of EconomicsUniversity of TorontoTorontoCanada
  3. 3.Department of EconomicsBen Gurion UniversityIsrael

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