Work

How Common Is the Common-Ratio Effect?

Year: 2020

Type: article

Abstract: The common-ratio effect and the Allais Paradox (common-consequence effect) are the two best‐known violations of Expected Utility Theory. We reexamine data from 39 articles reporting experiments (143 designs/parameterizations, 14,909 observations) and find that the common-ratio effect is systematically affected by experimental design and implementation choices. The common-ratio effect is more likely to be observed in experiments with a low common-ratio factor, a high ratio of middle to highest outcome, when lotteries are presented as simple probability distributions (not in a compound/frequency form), and with high hypothetical incentives.

Source: Experimental Economics

DOI: 10.1007/s10683-022-09761-y

Authors: Pavlo Blavatskyy, Valentyn Panchenko, Andreas Ortmann

Institutions: MBS School of Business, UNSW Sydney

Language: English

Topic: Decision-Making and Behavioral Economics

Subfield: General Decision Sciences

Field: Decision Sciences

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $2,750

Funders: Agence Nationale de la Recherche, University of New South Wales