Axiom of Monotonicity: An Experimental Test

Sharma, Tridib and Vadovic, Radovan (2010): Axiom of Monotonicity: An Experimental Test.

Abstract

The Axiom of Monotonicity (AM) is a necessary condition for a number of expected utility representations, including those obtained by de Finetti (1930), von Neumann and Morgenstern (1944) and Savage (1954). The paper reports on experiments that directly test AM by eliminating strategic uncertainty, context, and peer effects. In this sterile and simple environment we do not observe AM violations under uncertainty but we do observe violations under ambiguity.

• Item Type: MPRA Paper
• Language: English
• Keywords: monotonicity, dominance, disjunction effect, sure thing principle
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty; C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games

References

[1] Ahn, S., D. (2008) "Ambiguity without a state space," Review of Economic Studies, 75(1), 3�-28.

[2] Andreoni J. and L. Samuelson (2006) "Building rational cooperation," Journal of Economic Theory, 127, 117-�154.

[3] Anscombe, F. J. and R. J. Aumann (1963) "A de�nition of subjective probability," The Annals of Mathematics and Statistics, 34, 199-�205.

[4] Bolton, G. and A. Ockenfels (2000) "ERC A theory of equity, reciprocity and competition," American Economic Review, 90, 166-�193.

[5] Croson, R. T. A. (1999) "The disjunction e¤ect and reason-based choice in games," Organizational Behavior and Human Decision Processes, 80, 118�-133.

[6] de Finetti, B. (1930) "Funzione caratteristica di un fenomeno aleatorio," Atti Accad. Naz. Lincei Rend. Cl. Sci. Fis. Mat. Nat., 4, 86-�133.

[7] Eckel, C. C. and P. Grossman, (1996) "Altruism in anonymous dictator games," Games and Economic Behavior 16, 181-�191.

[8] Ellsberg, D. (1961) "Risk, Ambiguity and the savage axioms," Quarterly Journal of Economics, 75, 643�-669.

[9] Fehr, E. and K. Schmidt (1999) "A theory of fairness, competition, and cooperation," Quarterly Journal of Economics, 114, 817�-868.

[10] Gächter, S. (2007) "Conditional cooperation, behavioral regularities from the lab and the �eld and their policy implications," in Bruno S. Frey and Alois Stutzer (eds): Economics and Psychology. A Promising New Cross-Disciplinary Field. CESifo Seminar Series. The MIT Press.

[11] Gilboa, I. (2009) "Theory of decision under uncertainty," Cambridge University Press.

[12] Gilboa, I. and D. Schmeidler (1989) "Maxmin expected utility with a non-unique prior," Journal of Mathematical Economics, 18, 141-�153.

[13] Gilboa, I. and D. Schmeidler (1995) "Case-based decision theory," Quarterly Journal of Economics, 110, 605-�639.

[14] Halevy, Y. (2007) "Ellsberg revisited: an experimental study," Econometrica (2007), 75, 503�-536.

[15] Ho¤man, E., K. McCabe, K. Shachat, and V. Smith (1996) "Social distance and other-regarding behavior in dictator games," American Economic Review 86, 653�-660.

[16] Klibano¤, P., M. Marinacci, and S. Mukerji (2005) "A smooth model of decision making under ambiguity," Econometrica 73(6) 1849-�1892.

[17] Kreps, D. (1988) "Notes on the theory of choice," Westview Press: Underground Classics in Economics.

[18] Rabin, M. (1993) "Incorporating fairness into game theory and economics," American Economic Review, 83, 1281�-1302.

[19] Savage, L. J. (1954) "The foundations of statistics," New York: Wiley.

[20] Schmeidler, D. (1989) "Subjective probability and expected utility without additivity," Econometrica, 57, 571�-587.

[21] Sha�r, E. (1994) "Uncertainty and the di¢ culty of thinking through disjunctions," Cognition, 50, 403-�430.

[22] Sha�r, E. and A. Tversky, (1992) "Thinking through uncertainty: Nonconsequential reasoning and choice," Cognitive Psychology, 24, 449-�474.

[23] Sha�r, E., I. Simonson and A. Tversky (1993) "Reason-based choice," Cognition, 49, 11�-36.

[24] von Neumann, J. and O. Morgenstern (1944) "Theory of games and economic behavior," Princeton University Press.