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Violations of Cumulative Prospect Theory in Mixed Gambles with Moderate Probabilities

Author

Listed:
  • Guido Baltussen

    () (Erasmus School of Economics and Tinbergen Institute, P.O. Box 1738, Burgemeester Oudlaan 50, 3000 DR Rotterdam, The Netherlands)

  • Thierry Post

    () (Erasmus School of Economics, P.O. Box 1738, 3000 DR Rotterdam, The Netherlands)

  • Pim van Vliet

    () (Robeco, P.O. Box 973, 3000 DR Rotterdam, The Netherlands)

Abstract

In a classroom choice experiment with mixed gambles and moderate probabilities, we find severe violations of cumulative prospect theory (CPT) and of Markowitz stochastic dominance. Our results shed new light on the exchange between Levy and Levy (2002) and Wakker (2003) in this journal.

Suggested Citation

  • Guido Baltussen & Thierry Post & Pim van Vliet, 2006. "Violations of Cumulative Prospect Theory in Mixed Gambles with Moderate Probabilities," Management Science, INFORMS, vol. 52(8), pages 1288-1290, August.
  • Handle: RePEc:inm:ormnsc:v:52:y:2006:i:8:p:1288-1290
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    File URL: http://dx.doi.org/10.1287/mnsc.1050.0544
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    References listed on IDEAS

    as
    1. 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.
    2. Moshe Levy & Haim Levy, 2002. "Prospect Theory: Much Ado About Nothing?," Management Science, INFORMS, vol. 48(10), pages 1334-1349, October.
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    Citations

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    Cited by:

    1. Eeckhoudt, Louis & Schlesinger, Harris & Tsetlin, Ilia, 2009. "Apportioning of risks via stochastic dominance," Journal of Economic Theory, Elsevier, vol. 144(3), pages 994-1003, May.
    2. Rosenblatt-Wisch, Rina, 2008. "Loss aversion in aggregate macroeconomic time series," European Economic Review, Elsevier, vol. 52(7), pages 1140-1159, October.
    3. Hans-Martin von Gaudecker & Arthur van Soest & Erik Wengstrom, 2011. "Heterogeneity in Risky Choice Behavior in a Broad Population," American Economic Review, American Economic Association, vol. 101(2), pages 664-694, April.
    4. repec:kap:theord:v:82:y:2017:i:3:d:10.1007_s11238-016-9567-7 is not listed on IDEAS
    5. Salvatore Greco & Fabio Rindone, 2014. "The bipolar Choquet integral representation," Theory and Decision, Springer, vol. 77(1), pages 1-29, June.
    6. Cumova, Denisa & Nawrocki, David, 2014. "Portfolio optimization in an upside potential and downside risk framework," Journal of Economics and Business, Elsevier, vol. 71(C), pages 68-89.
    7. George Wu & Alex B. Markle, 2008. "An Empirical Test of Gain-Loss Separability in Prospect Theory," Management Science, INFORMS, vol. 54(7), pages 1322-1335, July.
    8. Ferdinand Vieider, 2016. "Certainty Preference, Random Choice, and Loss Aversion: A Comment on "Violence and Risk Preference: Experimental Evidence from Afghanistan"," Economics & Management Discussion Papers em-dp2016-06, Henley Business School, Reading University.
    9. Fang, Yi, 2012. "Aggregate investor preferences and beliefs in stock market: A stochastic dominance analysis," Journal of Empirical Finance, Elsevier, vol. 19(4), pages 528-547.

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