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Testing independence conditions in the presence of errors and splitting effects

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Abstract

This paper presents experimental tests of several independence conditions implied by expected utility and alternative models. We perform repeated choice experiments and fit an error model that allows us to discriminate between true violations of independence and those that can be attributed to errors. In order to investigate the role of event splitting effects, we present each choice problem not only in coalesced form (as in many previous studies) but also in split forms. It turns out previously reported violations of independence and splitting effects remain significant even when controlling for errors. However, splitting effects have a substantial influence on tests of independence conditions. When choices are presented in canonical split form, in which probabilities on corresponding probability-consequence ranked branches are equal, violations of the properties tested could be reduced to insignificance or even reversed.

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Notes

  1. For similar evidence of splitting effects in other contexts than choice under uncertainty see e.g. Weber et al. (1988) and Bateman et al. (1997).

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Acknowledgements

We thank Glenn W. Harrison, James C. Cox, Graham Loomes, Peter P. Wakker, Stefan Trautmann, and seminar participants in Tilburg, Orlando, Atlanta, Exeter, Barcelona, Utrecht, and Rotterdam for helpful comments. Thanks are due to Jeffrey P. Bahra for assistance in data collection for Experiment 2.

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Authors and Affiliations

  1. Department of Psychology, California State University (CSUF), Fullerton, CA, 92834-6846, USA

    Michael H. Birnbaum

  2. Department of Economics, University of Kiel, Olshausenstr, 40, 24098, Kiel, Germany

    Ulrich Schmidt & Miriam D. Schneider

  3. Kiel Institute for the World Economy, Kiel, Germany

    Ulrich Schmidt

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  1. Michael H. Birnbaum
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  2. Ulrich Schmidt
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Correspondence to Michael H. Birnbaum or Ulrich Schmidt.

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Birnbaum, M.H., Schmidt, U. & Schneider, M.D. Testing independence conditions in the presence of errors and splitting effects. J Risk Uncertain 54, 61–85 (2017). https://doi.org/10.1007/s11166-017-9251-5

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