Testing independence conditions in the presence of errors and splitting effects

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper presents an experimental test of several independence conditions implied by expected utility and alternative models. We perform a repeated choice experiment 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 most previous studies) but also in split form. It turns out previously reported violations of independence and splitting effects remain significant even when controlling for errors. Splitting effects have a substantial influence on the tests of independence conditions. When choices are presented in canonical split form, in which probabilities on corresponding probabilityconsequence ranked branches are equal, violations of the independence conditions we tested become either reversed, insignificant or unsystematic. Terms of use: Documents in AbstractThis paper presents an experimental test of several independence conditions implied by expected utility and alternative models. We perform a repeated choice experiment 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 most previous studies) but also in split form. It turns out previously reported violations of independence and splitting effects remain significant even when controlling for errors. Splitting effects have a substantial influence on the 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 independence conditions we tested become either reversed, insignificant or unsystematic.

The Impact of Learning by Thought on Violations of Independence and Coalescing

“…The evidence reported in that paper and in Birnbaum and Chavez (1997) indicates that one should observe either no violations or violations contrary to CPT with inverse-S weighting function. The data obtained from the present experiment have been used by Birnbaum et al (2009) to analyze a different question, i.e., whether violations of independence can be attributed to errors. The issue of learning is not addressed in that paper.…”

Violations of coalescing in parametric utility measurement

“…We examine these questions using data from a pairwise choice experiment (see Birnbaum et al 2017), conducted with 54 student subjects at the University of Kiel in Germany (all undergraduate students, 61% in the economics and business administration programs; 22.0 years old on average; of them, 21 female). The experiment is based on a random-lottery incentive mechanism, which is a commonly used one-step choice-based elicitation approach that lets subjects face multiple pairs of gambles in a sequence and choose a preferred gamble for each of the pairs (see, e.g., Hey and Orme 1994;Wu and Gonzalez 1996).…”

“…Also other typical violations of EU, like the common ratio effect or violations of transitivity, are less frequently observed for split than for coalesced presentation of gambles (Humphrey 2001;Schmidt and Seidl 2014;Birnbaum et al 2017). The fact that coalesced and split presentation of gambles can lead to systematically different choice behavior has already been discussed by Starmer and Sugden (1993) and Humphrey (1995) under the term event-splitting effects.…”

“…x; p; x; q; y; (Birnbaum et al 2017). Because coalescing and transitivity should be satisfied within the CPT framework with any 4 Before examining coalescing in more detail, it is important to define the elements called branches that comprise any gamble in question.…”

“…Interestingly, it appears that violations of coalescing cannot be attributed to lack of knowledge, as they are persistent even in people with doctoral degrees who are familiar with the literature on decision making (Birnbaum 1999). Neither can the splitting effects be explained by errors, as they are still persistent when errors are factored out (Birnbaum et al 2017), nor can the effects be attributed to the particular format 5 used for presenting, or framing, the gambles (Birnbaum 2004(Birnbaum , 2006Birnbaum et al 2008). Decision heuristics, like anchoring and adjustment, cannot account for the observed splitting effects either (Humphrey 1996).…”