infonet-economy

The results of a new experimental study reveal highly systematic violations ofnexpected utility theory. The pattern of these violations is exactly the opposite of thenclassical common ratio effect discovered by Allais (1953). Two recent decision theories—nstochastic expected utility theory (Blavatskyy, 2007) and perceived relative argumentnmodel (Loomes, 2008)—predicted the existence of a reverse common ratio effect. However, these theories can rationalize only one part of the new experimental data reported in this paper. The other part appears to be neither predicted by existing theories nor documented in the existing empirical studies.