EUT Violations

Question 1

What’s Tversky known for?

Answer 1

College acceptance test. Empirical test of transitivity axiom.

Question 2

Allais’ paradox is a clear ___________ violation of EUT.

Answer 2

Descriptive.

Question 3

What does Allais Paradox contradict?

Answer 3

Expected Utility Theory

Question 4

Why the empirical test of transitivity axiom a violation of transitivity?

Answer 4

When subjects were asked if they preferred A or E, they picked E, even though in theory A > B > C > D > E.

In other words, in theory A > E.

Question 5

What is Savage’s sure thing principle?

Answer 5

In theory, people should prefer A over B, even if you introduce a third option.

Question 6

What did Savage say when subjects did not change their answers in the Allais’ Paradox Test?

Answer 6

They do not explain why it is normative. They don’t know why they should pick A and C, or B and D.

Question 7

What did Allais say when subjects did not change their answers in the Allais’ Paradox Test?

Answer 7

It is further evidence that EUT is not normative.

Question 8

Is EUT normative?

Answer 8

Yes, in this class at least.

Question 9

Is EUT descriptive? Why?

Answer 9

No. Intransitivity, Allais Paradox, Ellsberg’s paradox.

Question 10

Why do Kahneman & Tversky argue that no theory of decision-making can be both normative and descriptive?

Answer 10

Because framing effects are robust and never be justified on normative grounds.