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A Test of Rank-Dependent Utility in the Context of Ambiguity

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  • Fennema, Hein
  • Wakker, Peter

Abstract

Experimental investigations of non-expected utility have primarily concentrated on decision under risk ("probability triangles"). The literature suggests, however, that ambiguity is one of the main causes for deviations from expected utility (EU). This article investigates the descriptive performance of rank-dependent utility (RDU) in the context of choice under ambiguity. We use the axiomatic difference between RDU and EU to critically test RDU against EU. Surprisingly, the RDU model does not provide any descriptive improvement over EU. Our data suggest other "framing" factors that do provide descriptive improvements over EU. Copyright 1996 by Kluwer Academic Publishers

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Bibliographic Info

Article provided by Springer in its journal Journal of Risk and Uncertainty.

Volume (Year): 13 (1996)
Issue (Month): 1 (July)
Pages: 19-35

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Handle: RePEc:kap:jrisku:v:13:y:1996:i:1:p:19-35

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Web page: http://www.springerlink.com/link.asp?id=100299

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Cited by:
  1. Peter P. Wakker, 2000. "Uncertainty aversion: a discussion of critical issues in health economics," Health Economics, John Wiley & Sons, Ltd., vol. 9(3), pages 261-263.
  2. Adam Oliver, 2003. "Testing rank-dependent utility theory for health outcomes," Health Economics, John Wiley & Sons, Ltd., vol. 12(10), pages 863-871.
  3. Fredrik Andersson & Carl Hampus Lyttkens, 1999. "Preferences for equity in health behind a veil of ignorance," Health Economics, John Wiley & Sons, Ltd., vol. 8(5), pages 369-378.
  4. Fredrik Andersson & Carl Hampus Lyttkens, 2000. "Uncertainty aversion-a reply to Oliver," Health Economics, John Wiley & Sons, Ltd., vol. 9(3), pages 257-259.
  5. Olivier L’Haridon & Lætitia Placido, 2010. "Betting on Machina’s reflection example: an experiment on ambiguity," Theory and Decision, Springer, vol. 69(3), pages 375-393, September.
  6. Adam Oliver, 2000. "Uncertainty aversion: a reply to the paper by Andersson and Lyttkens," Health Economics, John Wiley & Sons, Ltd., vol. 9(3), pages 253-255.

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