Tests of Hypotheses about Certainty Equivalents and Joint Receipt of Gambles

Abstract

The present experiment was designed to test whether choice-induced certainty equivalents (CEs) and joint receipt (JR) of gambles exhibit certain properties such as the equality of JR and convolution, monotonicity of convolution, monotonicity of JR over gambles, additivity of JR over gambles and money, segregation of a common consequence, additive segregation when JR is replaced by +, and several other derivative properties. Subjects were partitioned into "gamblers" and "nongamblers" by their performance on screening gambles. Assuming that CE is order preserving, monotonicity of JR and additivity of JR over gambles were both rejected whereas additivity of JR over money, segregation, and additive segregation were all sustained for gamblers and nongamblers. For gamblers, convolution is not monotonic but is equivalent to JR and segregation and additive segregation are not equivalent. For nongamblers, convolution is monotonic but is not equivalent to JR and segregation and additive segregation are probably equivalent.