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A Belief-Based Account of Decision Under Uncertainty

Author

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  • Craig R. Fox

    (Fuqua School of Business, Duke University, Durham, North Carolina 27708-0120)

  • Amos Tversky

    (Department of Psychology, Stanford University, Stanford, California 94305)

Abstract

We develop a belief-based account of decision under uncertainty. This model predicts decisions under uncertainty from (i) judgments of probability, which are assumed to satisfy support theory; and (ii) decisions under risk, which are assumed to satisfy prospect theory. In two experiments, subjects evaluated uncertain prospects and assessed the probability of the respective events. Study 1 involved the 1995 professional basketball playoffs; Study 2 involved the movement of economic indicators in a simulated economy. The results of both studies are consistent with the belief-based account, but violate the partition inequality implied by the classical theory of decision under uncertainty.

Suggested Citation

  • Craig R. Fox & Amos Tversky, 1998. "A Belief-Based Account of Decision Under Uncertainty," Management Science, INFORMS, vol. 44(7), pages 879-895, July.
  • Handle: RePEc:inm:ormnsc:v:44:y:1998:i:7:p:879-895
    DOI: 10.1287/mnsc.44.7.879
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    References listed on IDEAS

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    1. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
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    5. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    6. Fox, Craig R & Rogers, Brett A & Tversky, Amos, 1996. "Options Traders Exhibit Subadditive Decision Weights," Journal of Risk and Uncertainty, Springer, vol. 13(1), pages 5-17, July.
    7. Craig R. Fox & Amos Tversky, 1995. "Ambiguity Aversion and Comparative Ignorance," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 585-603.
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