Revealed Preferences Under Uncertainty: Evidence for Convex and Incomplete Preferences

52 Pages Posted: 1 Aug 2016 Last revised: 18 Apr 2018

See all articles by Elena Cettolin

Elena Cettolin

Tilburg University - Department of Economics

Arno Riedl

Maastricht University; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: April 2, 2018

Abstract

The completeness axiom of choice has been questioned for long and theoretical models of decision making allowing for incomplete preferences have been developed. So far the theoretical accomplishments have not been paired with empirical evidence on the actual existence of incomplete preferences under uncertainty. We provide such evidence. In a first experiment we design a decision task where specific choice patterns are consistent with incomplete variational Bewley preferences and complete convex preferences but inconsistent with other models assuming completeness. In a second experiment we directly test for convex preferences allowing us to disentangle them from variational Bewley preferences. We find that approximately half of the participants behave consistent with convex preferences and variational Bewley preferences. About half of these participants exhibit behavior consistent only with variational Bewley preferences, about one third shows behavior consistent with strictly convex preferences, and the remaining participants' behavior is consistent with both weakly convex and incomplete preferences. In further experiments we show that the observed behavioral pattern cannot be attributed to probability weighting, choice mistakes, or intransitive indifference. In a further test we show that the observed behavior is robust to a prize variation in the ambiguous prospect.

Keywords: Incomplete preferences, uncertainty, multiple priors, experiment

JEL Classification: C91, D01, D81

Suggested Citation

Cettolin, Elena and Riedl, Arno M., Revealed Preferences Under Uncertainty: Evidence for Convex and Incomplete Preferences (April 2, 2018). Available at SSRN: https://ssrn.com/abstract=2816025 or http://dx.doi.org/10.2139/ssrn.2816025

Elena Cettolin

Tilburg University - Department of Economics ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Arno M. Riedl (Contact Author)

Maastricht University ( email )

Department of Economics (AE1)
P.O. Box 616
Maastricht, 6200 MD
Netherlands

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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