Testing Expected Utility in the Presence of Errors

16 Pages Posted: 11 Apr 2007

See all articles by Ulrich Schmidt

Ulrich Schmidt

University of Kiel - Institute of Economics

Tibor Neugebauer

Leibniz Universit├Ąt Hannover - Economics and Business Administration Area

Date Written: 0000

Abstract

One possible conclusion from recent experimental research on decision making under risk is that observed behaviour can be reasonably accommodated by expected utility plus an error term. This conclusion implies that the violation rate of expected utility should decrease if errors are excluded. This article reports on an experiment which investigates this implication by presenting the same choice problems to subjects three times. The results show that the exclusion of errors leads to a significant reduction of the violation rate for most of the cases. This observation can be regarded as supporting evidence for expected utility plus error term.

Suggested Citation

Schmidt, Ulrich and Neugebauer, Tibor, Testing Expected Utility in the Presence of Errors (0000). The Economic Journal, Vol. 117, Issue 518, pp. 470-485, March 2007. Available at SSRN: https://ssrn.com/abstract=978576 or http://dx.doi.org/10.1111/j.1468-0297.2007.02026.x

Ulrich Schmidt (Contact Author)

University of Kiel - Institute of Economics ( email )

Olshausenstrasse 40
24098 Kiel, 24098
Germany

Tibor Neugebauer

Leibniz Universit├Ąt Hannover - Economics and Business Administration Area ( email )

Koenigsworther Platz 1
30167 Hannover
Germany
+49 511 762-5161 (Phone)
+49 511 762-5240 (Fax)

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