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Journal of Risk and Uncertainty

, Volume 54, Issue 1, pp 61–85 | Cite as

Testing independence conditions in the presence of errors and splitting effects

  • Michael H. BirnbaumEmail author
  • Ulrich SchmidtEmail author
  • Miriam D. Schneider
Article
  • 211 Downloads

Abstract

This paper presents experimental tests of several independence conditions implied by expected utility and alternative models. We perform repeated choice experiments and fit an error model that allows us to discriminate between true violations of independence and those that can be attributed to errors. In order to investigate the role of event splitting effects, we present each choice problem not only in coalesced form (as in many previous studies) but also in split forms. It turns out previously reported violations of independence and splitting effects remain significant even when controlling for errors. However, splitting effects have a substantial influence on tests of independence conditions. When choices are presented in canonical split form, in which probabilities on corresponding probability-consequence ranked branches are equal, violations of the properties tested could be reduced to insignificance or even reversed.

Keywords

Coalescing Errors Expected utility Independence axiom Prospect theory Risky decision making Splitting effects 

JEL Classifications

C91 D81 

Notes

Acknowledgements

We thank Glenn W. Harrison, James C. Cox, Graham Loomes, Peter P. Wakker, Stefan Trautmann, and seminar participants in Tilburg, Orlando, Atlanta, Exeter, Barcelona, Utrecht, and Rotterdam for helpful comments. Thanks are due to Jeffrey P. Bahra for assistance in data collection for Experiment 2.

Supplementary material

11166_2017_9251_MOESM1_ESM.pdf (861 kb)
ESM 1 (PDF 861 kb)

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Copyright information

© Springer Science+Business Media New York 2017

Authors and Affiliations

  1. 1.Department of PsychologyCalifornia State University (CSUF)FullertonUSA
  2. 2.Department of EconomicsUniversity of KielKielGermany
  3. 3.Kiel Institute for the World EconomyKielGermany

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