An Experimental Test of the Anscombe-Aumann Monotonicity Axiom
University of Zurich, Department of Economics, Working Paper No. 207, Revised version
27 Pages Posted: 14 Oct 2015 Last revised: 24 May 2017
Date Written: May 2017
Abstract
Most models of ambiguity aversion satisfy Anscombe-Aumann’s Monotonicity axiom. Monotonicity imposes separability of preferences across events that occur with unknown probability. We construct a test of Monotonicity by modifying the Allais paradox to a setting with both subjective and objective uncertainty. Two experimental studies are conducted: while study 1 uses U.S. online workers and a natural source of ambiguity, study 2 employs European students and an Ellsberg urn. In both studies, modal behavior violates Monotonicity in a specific, intuitive way. Overall, our data suggest that violations of Monotonicity are as prevalent as violations of von Neumann-Morgenstern’s Independence axiom.
Keywords: Ambiguity aversion, monotonicity, Anscombe-Aumann, Allais paradox, experiments
JEL Classification: D81
Suggested Citation: Suggested Citation