Evidence against Rank-Dependent Utility Theories: Tests of Cumulative Independence, Interval Independence, Stochastic Dominance, and Transitivity

Author： Birnbaum M.H. Patton J.N. Lott M.K.

Publisher： Academic Press

ISSN： 0749-5978

Source： Organizational Behavior and Human Decision Processes, Vol.77, Iss.1, 1999-01, pp. : 44-83

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Abstract

This study tests between two modern theories of decision making. Rank- and sign-dependent utility (RSDU) models, including cumulative prospect theory (CPT), imply stochastic dominance and two cumulative independence conditions. Configural weight models, with parameters estimated in previous research, predict systematic violations of these properties for certain choices. Experimental data systematically violate all three properties, contrary to RSDU but consistent with configural weight models. This study also tests whether violations of stochastic dominance can be explained by violations of transitivity. Violations of transitivity may be evidence of a dominance detecting mechanism. Although some transitivity violations were observed, most choice triads violated stochastic dominance without violating transitivity. Judged differences between gambles were not consistent with the CPT model. Data were not consistent with the editing principles of cancellation and combination. The main findings are interpreted in terms of coalescing, the principle that equal outcomes can be combined in a gamble by adding their probabilities. RSDU models imply coalescing but configural weight models violate it, allowing configural weighting to explain violations of stochastic dominance and cumulative independence.