An Experimental Comparison of Risky and Riskless Choice—Limitations of Prospect Theory and Expected Utility Theory†
An Experimental Comparison of Risky and Riskless Choice—Limitations of Prospect Theory and...
Chung, Hui-Kuan; Glimcher, Paul; Tymula, Agnieszka
2019-08-01 00:00:00
AbstractProspect theory, used descriptively for decisions under both risk and certainty, presumes concave utility over gains and convex utility over losses; a pattern widely seen in lottery tasks. Although such discontinuous gain-loss reference-dependence is also used to model riskless choices, only limited empirical evidence supports this use. In incentive-compatible experiments, we find that gain-loss reflection effects are not observed under riskless choice as predicted by prospect theory, even while in the same subjects gain-loss reflection effects are observed under risk. Our empirical results challenge the application of choice models across both risky and riskless domains. (JEL C91, D12, D81)
http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.pngAmerican Economic Journal: MicroeconomicsAmerican Economic Associationhttp://www.deepdyve.com/lp/american-economic-association/an-experimental-comparison-of-risky-and-riskless-choice-limitations-of-ciIE240q06
An Experimental Comparison of Risky and Riskless Choice—Limitations of Prospect Theory and Expected Utility Theory†
AbstractProspect theory, used descriptively for decisions under both risk and certainty, presumes concave utility over gains and convex utility over losses; a pattern widely seen in lottery tasks. Although such discontinuous gain-loss reference-dependence is also used to model riskless choices, only limited empirical evidence supports this use. In incentive-compatible experiments, we find that gain-loss reflection effects are not observed under riskless choice as predicted by prospect theory, even while in the same subjects gain-loss reflection effects are observed under risk. Our empirical results challenge the application of choice models across both risky and riskless domains. (JEL C91, D12, D81)
Journal
American Economic Journal: Microeconomics
– American Economic Association
To get new article updates from a journal on your personalized homepage, please log in first, or sign up for a DeepDyve account if you don’t already have one.
All DeepDyve websites use cookies to improve your online experience. They were placed on your computer when you launched this website. You can change your cookie settings through your browser.