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


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 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Becker, Gordon M., Morris, H. DeGroot, and Jacob, Marschak. (1964). “Measuring Utility by a Single-Response Sequential Method,” Behavioral Science 9, 226–232.Google Scholar
  2. Chew, Soo Hong. (1985). “From Strong Substitution to Very Weak Substitution: Implicit Weighted Utility and Semi-Weighted Utility,” mimeo.Google Scholar
  3. Chew, Soo Hong, Edi, Karni, and Zvi, Safra. (1987). “Risk Aversion in the Theory of Expected Utility with Rank Dependent Probabilities,” Journal of Economic Theory 42, 370–381.Google Scholar
  4. Dekel, Eddie. (1986). “An Axiomatic Characterization of Preferences under Uncertainty: Weakening the Independence Axiom,” Journal of Economic Theory 40, 304–318.Google Scholar
  5. Grether, David M., and Charles R. Plott. (1979). “Economic Theory of Choice and the Preference Reversal Phenomenon,” American Economic Review 69, 623–638.Google Scholar
  6. Holt, Charles A. (1986). “Preference Reversal and the Independence Axiom,” American Economic Review 76, 508–515.Google Scholar
  7. Karni, Edi, and Zvi Safra. (1987). “‘Preference Reversal’ and the Observability of Preferences by Experimental Methods,” Econometrica 55, 675–685.Google Scholar
  8. Karni, Edi, and Zvi Safra. (1988). “Rank Dependent Probabilities,” Economic Journal, forthcoming.Google Scholar
  9. Lichtenstein, Sarah, and Paul Slovic. (1971). “Reversals of Preferences Between Bids and Choices in Gambling Decisions,” Journal of Experimental Psychology 89, 46–55.Google Scholar
  10. Machina, Mark J. (1982). “‘Expected Utility’ Analysis Without the Independence Axiom,” Econometrica 50, 277–323.Google Scholar
  11. Quiggin, John. (1982). “A Theory of Anticipated Utility,” Journal of Economic Behavior and Organization 3, 323–343.Google Scholar
  12. Safra, Zvi, Uzi Segal, and Avia Spivak. (1988). “Preference Reversals and Nonexpected Utility Behavior,” University of Toronto WP #88-13.Google Scholar
  13. Segal, Uzi. (1987). “Some Remarks on Quiggin's Anticipated Utility,” Journal of Economic Behavior and Organization 8, 145–154.Google Scholar
  14. Segal, Uzi. (1988). “Does the Preference Reversal Phenomenon Necessarily Contradict the Independence Axiom?” American Economic Review 78, 233–236.Google Scholar
  15. Yaari, Monahem E. (1987). “The Dual Theory of Choice Under Risk,” Econometrica 55, 95–115.Google Scholar

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

Personalised recommendations