THE RISK-STRUCTURE DEPENDENCE EFFECT - EXPERIMENTING WITH AN EYE TO DECISION-AIDING

In this paper, we aim at obtaining, from an experimental design in dec ision making under risk, richer and more appropriate information for m anagement scientists involved in decision-aiding. We design a method o f direct elicitation of individual indifference curves in the Marschak -Machina triangle (i.e., the set of all probability distributions over three fixed outcomes). Our results show that indifference curves clea rly take quite different types of shape according to their location wi thin the triangle, i.e. that preferences under risk fundamentally depe nd on the risk-structure (as defined in the paper) faced by the decisi on maker. Furthermore, the risk-structure dependence effect explains t he indecisive results of previous experimental/econometric studies try ing to rank different models according to their descriptive power.