CeDEx Seminar - Fabio Angelo Maccheroni (Bocconi University)

This week's seminar will be given by Fabio Angelo Maccheroni (Bocconi University).

Title: Testing the separation of beliefs and tastes

Abstract: A large body of empirical evidence shows violations of expected utility. In response, decision theory and behavioral economics have provided a large variety of non-expected utility theories. However, the existing evidence does not clearly discriminate among such theories. On the gains domain, many of the most well-known non-expected utility models belong to the class maintain the assumption of separability of beliefs and tastes (Savage's P3 and P4). For example, this is the case for all Probabilistically Sophisticated Models, Rank Dependent Utility models (Choquet Expected Utility, Prospect Theory and Choice-Acclimating Personal Equilibria), models of Disappointment Aversion, Maxmin Expected Utility and its Alpha-maxmin extension. In this paper we derive a non-parametric procedure for jointly testing these two axioms and we apply it to the results of a lab experiment. In the data we find little support for the mentioned separation. On the other hand, the observed behavior can be accommodated by alternative models, such as Smooth Ambiguity and Source Dependent Expected Utility.