SSRN-The Role of Markets in Reducing Expected Utility Violations by Dorla Evans

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The Role of Markets in Reducing Expected Utility Violations

DORLA A. EVANS
University of Alabama in Huntsville

JOURNAL OF POLITICAL ECONOMY, Vol 105 No 3, June 1997

Abstract:
Market theorists assume that expected utility predicts preferences at the market level even as evidence mounts that it predicts poorly at the individual level. The arguments for better-performing markets are grounded in the assumption that individuals respond to the competition of the market. The objective of this study is to test empirically the validity of those assumptions using the betweenness property of expected utility. I conclude that expected utility does indeed predict better in markets, but analyses suggest that improved performance may be due to the statistical role played by markets introduced by market price selection rules.

JEL Classifications: D81, D11, D69

Accepted Paper Series

Contact Information for DORLA A. EVANS (Contact Author)

Email address for DORLA A. EVANS
University of Alabama in Huntsville
Huntsville , AL 35899
United States
205-895-6328 (Phone)
205-895-6764 (Fax)

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