Abstract
This study presents basic analysis of individual preferences by experiment set and provides evidence that encounters expected utility theory (EUT). The main focus of this study is the independence axiom on decision making under risk which is required by EUT for rational behavior assumption. While people are difficult to follow the independence axiom, individual preferences cannot be predicted using EUT and alternative theory is required to predict individual preferences. The alternative theory of choice has been developed in many previous studies to give a different analysis instead of EUT. We also develop estimation analysis of factors affecting individual preferences according to independence axiom. In addition, this study provides an analysis of sex different by comparing both men and women preferences under risk. Allais paradox phenomena are performed for the design of systematically deviations proposed by prospect theory.
Author: Yudistira Permana & Gumilang Sahadewo.
This is unpublished paper. Mimeo of Universitas Gadjah Mada. It can be retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2306779