Robustness of Rank Independence in Risky Choice
- (pp. 415-20)
Abstract
Bernheim and Sprenger (2020) devise and implement a novel test of rank-dependent probability weighting both in general and as formulated in cumulative prospect theory. They reject both hypotheses decisively. Cumulative prospect theory cannot simultaneously account for the rank independence of "equalizing reductions" for three-outcome lotteries, which it construes as indicating linear probability weighting, and the relationship between equalizing reductions and probabilities, which it interprets as indicating highly nonlinear probability weighting. In the current paper, we explore the robustness of the first finding, rank independence of equalizing reductions (and hence of decision weights), with respect to alternative experimental procedures.Citation
Bernheim, B. Douglas, Rebecca Royer, and Charles Sprenger. 2022. "Robustness of Rank Independence in Risky Choice." AEA Papers and Proceedings, 112: 415-20. DOI: 10.1257/pandp.20221090Additional Materials
JEL Classification
- D44 Auctions
- D81 Criteria for Decision-Making under Risk and Uncertainty