Both the outcome effect and the certainty effect violate the independence axiom.

Question

Quizplus · Accepted Answer

The outcome effect and the certainty effect both violate the independence axiom of expected utility theory, as they involve preferences changing based on irrelevant aspects of the outcomes or due to the presence of certainty, respectively, which contradicts the axiom's stipulation that preferences between options should remain consistent regardless of context.

Both the Outcome Effect and the Certainty Effect Violate the Independence