How Common Is the Common-Ratio Effect?

Pavlo R. Blavatskyy · Valentyn Panchenko · Andreas Ortmann

24 citations0/0 files storedExperimental Economics

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Decision-Making and Behavioral Economics Economic and Environmental Valuation Experimental Behavioral Economics Studies

Abstract

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.

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References

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