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 language | English |
|---|---|
| Pages (from-to) | 177-190 |
| Number of pages | 14 |
| Journal | Journal of Risk and Uncertainty |
| Volume | 3 |
| Issue number | 2 |
| DOIs | |
| State | Published - 1 Jun 1990 |
Keywords
- Becker-DeGroot-Marschak mechanism
- nonexpected utility
- Preference reversals
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics