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An experimental test of prospect theory for predicting choice under ambiguity

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  • Amit Kothiyal
  • Vitalie Spinu
  • Peter Wakker

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Abstract

Prospect theory is the most popular theory for predicting decisions under risk. This paper investigates its predictive power for decisions under ambiguity, using its specification through the source method. We find that it outperforms its most popular alternatives, including subjective expected utility, Choquet expected utility, and three multiple priors theories: maxmin expected utility, maxmax expected utility, and a-maxmin expected utility. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Amit Kothiyal & Vitalie Spinu & Peter Wakker, 2014. "An experimental test of prospect theory for predicting choice under ambiguity," Journal of Risk and Uncertainty, Springer, vol. 48(1), pages 1-17, February.
  • Handle: RePEc:kap:jrisku:v:48:y:2014:i:1:p:1-17
    DOI: 10.1007/s11166-014-9185-0
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    References listed on IDEAS

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    Cited by:

    1. James Cox & Vjollca Sadiraj & Ulrich Schmidt, 2015. "Paradoxes and mechanisms for choice under risk," Experimental Economics, Springer;Economic Science Association, vol. 18(2), pages 215-250, June.
    2. Konstantinos Georgalos, 2016. "Dynamic decision making under ambiguity," Working Papers 112111041, Lancaster University Management School, Economics Department.
    3. Müller, Julia & Li, Zhihua & Wakker, Peter P. & Wang, Tong V., 2016. "The Rich Domain of Ambiguity Explored," Annual Conference 2016 (Augsburg): Demographic Change 145734, Verein für Socialpolitik / German Economic Association.
    4. Lahno, Amrei M., 2014. "Social anchor effects in decision-making under ambiguity," Discussion Papers in Economics 20960, University of Munich, Department of Economics.
    5. Mengxing Wei & Ali al-Nowaihi & Sanjit Dhami, 2017. "Can quantum decision theory explain the Ellsberg paradox?," Discussion Papers in Economics 17/07, Department of Economics, University of Leicester.
    6. Ali al-Nowaihi & Sanjit Dhami, 2016. "The Ellsberg paradox: A challenge to quantum decision theory?," Discussion Papers in Economics 16/08, Department of Economics, University of Leicester.
    7. Olivier Armantier & Nicolas Treich, 2016. "The Rich Domain of Risk," Management Science, INFORMS, vol. 62(7), pages 1954-1969, July.
    8. repec:kap:jrisku:v:54:y:2017:i:3:d:10.1007_s11166-017-9262-2 is not listed on IDEAS
    9. Stephen Dimmock & Roy Kouwenberg & Olivia Mitchell & Kim Peijnenburg, 2015. "Estimating ambiguity preferences and perceptions in multiple prior models: Evidence from the field," Journal of Risk and Uncertainty, Springer, vol. 51(3), pages 219-244, December.

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