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New tests of cumulative prospect theory and the priority heuristic: Probability-outcome tradeoff with branch splitting

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  • Michael H. Birnbaum
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    Abstract

    Previous tests of cumulative prospect theory (CPT) and of the priority heuristic (PH) found evidence contradicting these two models of risky decision making. However, those tests were criticized because they had characteristics that might ``trigger'' use of other heuristics. This paper presents new tests that avoid those characteristics. Expected values of the gambles are nearly equal in each choice. In addition, if a person followed expected value (EV), expected utility (EU), CPT, or PH in these tests, she would shift her preferences in the same direction as shifts in EV or EU. In contrast, the transfer of attention exchange model (TAX) and a similarity model predict that people will reverse preferences in the opposite direction. Results contradict the PH, even when PH is modified to include a preliminary similarity evaluation using the PH parameters. New tests of probability-consequence interaction were also conducted. Strong interactions were observed, contrary to PH. These results add to the growing bodies of evidence showing that neither CPT nor PH is an accurate description of risky decision making.

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    Bibliographic Info

    Article provided by Society for Judgment and Decision Making in its journal Judgment and Decision Making.

    Volume (Year): 3 (2008)
    Issue (Month): (April)
    Pages: 304-316

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    Handle: RePEc:jdm:journl:v:3:y:2008:i::p:304-316

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    Related research

    Keywords: choice; cumulative prospect theory; decision making; lexicographic semiorder; priority heuristic; prospect theory; utility.;

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    1. Leland, Jonathan W, 1994. "Generalized Similarity Judgments: An Alternative Explanation for Choice Anomalies," Journal of Risk and Uncertainty, Springer, vol. 9(2), pages 151-72, October.
    2. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
    3. Jonathan W. Leland, 1998. "Similarity Judgments in Choice Under Uncertainty: A Reinterpretation of the Predictions of Regret Theory," Management Science, INFORMS, vol. 44(5), pages 659-672, May.
    4. Birnbaum, Michael H & Navarrete, Juan B, 1998. "Testing Descriptive Utility Theories: Violations of Stochastic Dominance and Cumulative Independence," Journal of Risk and Uncertainty, Springer, vol. 17(1), pages 49-78, October.
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    Cited by:
    1. Amélie Vrijdags, 2013. "Min- and Max-induced rankings: an experimental study," Theory and Decision, Springer, vol. 75(2), pages 233-266, August.
    2. Alexander Morell & Andreas Glöckner & Emanuel Towfigh, 2009. "Sticky Rebates: Rollback Rebates Induce Non-Rational Loyalty in Consumers," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2009_23, Max Planck Institute for Research on Collective Goods, revised Feb 2013.
    3. Benjamin E. Hilbig, 2008. "One-reason decision making in risky choice? A closer look at the priority heuristic," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 3(6), pages 457-462, August.
    4. Yun-shil Cha & Michelle Choi & Ying Guo & Michel Regenwetter & Chris Zwilling, 2013. "Reply: Birnbaum's (2012) statistical tests of independence have unknown Type-I error rates and do not replicate within participant," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 8(1), pages 55-73, January.
    5. Andreas Glöckner & Ann-Katrin Herbold, 2008. "Information Processing in Decisions under Risk: Evidence for Compensatory Strategies based on Automatic Processes," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2008_42, Max Planck Institute for Research on Collective Goods.

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