The Reduction of compound lotteries is an implicit assumption both in the statement of the St. Petersburg Paradox as well as in its resolution by Expected Utility (EU). Yet despite the pivotal role of this assumption, to date there has been no empirical substantiation of its validity. Here we...

We report an experiment in which subjects are not indifferent between real-money lotteries implemented with randomization devices that are equivalent under the Reduction Axiom. Instead choice behavior is consistent with subjective distortion of conditional probability, and this persists in...