The Becker-DeGroot-Marschak mechanism and nonexpected utility: A testable approach

Zvi Safra, Uzi Segal, Avia Spivak

Research output: Contribution to journalArticlepeer-review

13 Scopus citations

Abstract

The Becker-DeGroot-Marschak mechanism is widely used to elicit decision makers' selling prices of lotteries. This mechanism leads, however, to the preference reversal phenomenon, which seemed to indicate nontransitive preferences. To solve this puzzle, Karni and Safra (1987) introduced a new interpretation of this mechanism based on two-stage lotteries without the independence axiom. In this article, we suggest a set of empirically testable hypotheses based on their interpretation of the mechanism. One of these tests can be used to find the utility and the probability transformation functions of an anticipated utility maximizer.

Original languageEnglish
Pages (from-to)177-190
Number of pages14
JournalJournal of Risk and Uncertainty
Volume3
Issue number2
DOIs
StatePublished - 1 Jun 1990

Keywords

  • Becker-DeGroot-Marschak mechanism
  • Preference reversals
  • nonexpected utility

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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