A TEST OF GENERALIZED EXPECTED UTILITY-THEORY

In two experiments we test Machina's Hypothesis II (fanning-out). In e ach experiment we analyze patterns of responses to hypothetical lotter y choice questions within a Marschak-Machina triangle. One set of ques tions involves lotteries on the border of the triangle, an the other s et of questions involves lotteries in the interior of the triangle (of f the border). Our results show that a large proportion of the observe d patterns in the on-border treatment support Hypothesis II. with a co nsiderable amount of fanning-out behavior observed. The patterns obser ved in the off-border treatment are significantly different from those in the on-border treatment. Hypothesis II performs well in the off-bo rder treatment because expected utility theory itself, which satisfies the restrictions of Hypothesis II, performs well.