Discovered preferences and the experimental evidence of violations of expected utility theory

The discovered preference hypothesis appears to insulate expected utility theory (EU) from disconfirming experimental evidence. It asserts that individuals have coherent underlying preferences, which experiments may not reveal unless subjects have adequate opportunities and incentives to discover wh...

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Bibliographic Details
Published in:The journal of economic methodology 2001, Vol.8 (3), p.385-414
Main Authors: Cubitt, Robin P., Starmer, Chris, Sugden, Robert
Format: Article
Language:English
Subjects:
Common Consequence Effect
Common Ratio Effect
Discovered Preference
Economic theory
Economics
Preferences
Single-TASK Design
Utility theory
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Summary:The discovered preference hypothesis appears to insulate expected utility theory (EU) from disconfirming experimental evidence. It asserts that individuals have coherent underlying preferences, which experiments may not reveal unless subjects have adequate opportunities and incentives to discover which actions best satisfy their preferences. We identify the confounding effects to be expected in experiments, were that hypothesis true, and consider how they might be controlled for. We argue for a design in which each subject faces just one distinct choice task for real. We review the results of some tests of EU which have used this design. These tests reveal the same violations of the independence axiom as other studies have found. We conclude that the discovered preference hypothesis does not justify scepticism about the reality of these effects.
ISSN:1350-178X
1469-9427
DOI:10.1080/13501780110103748