Journal of Risk and Uncertainty

, Volume 13, Issue 1, pp 19–35 | Cite as

A test of rank-dependent utility in the context of ambiguity

  • Hein Fennema
  • Peter Wakker


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.

Key words

ambiguity rank dependence non-expected utility comonotonicity presentation effects 

IEL code



Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Camerer, C.F. (1989). “An Experimental Test of Several Generalized Utility Theories,” Journal of Risk and Uncertainty 2, 61–104.Google Scholar
  2. Camerer, C.F., and T.-H., Ho. (1994). “Violations of the Betweenness Axiom and Nonlinearity in Probability,” Journal of Risk and Uncertainty 8, 167–196.Google Scholar
  3. Camerer, C.F., and M., Weber. (1992). “Recent Developments in Modelling Preferences: Uncertainty and Ambiguity,” Journal of Risk and Uncertainty 5, 325–370.Google Scholar
  4. Fishburn, P.C. and P.P., Wakker. (1995). “The Invention of the Independence Condition,” Management Science 41, 1130–1144.Google Scholar
  5. Hey, J.D., and C., Orme. (1994). “Investigating Parsimonious Generalizations of Expected Utility Theory Using Experimental Data,” Econometrica 62, 1291–1326.Google Scholar
  6. Kahneman, D., and A., Tversky. (1979). “Prospect Theory: An Analysis of Decision under Risk,” Econometrica 47, 263–291.Google Scholar
  7. Li, S. (1994). “What is the Role of Transparency in Cancellation?” Organizational Behavior and Human Decision Processes 60, 353–366.Google Scholar
  8. Lopes, L.L. (1987). “Between Hope and Fear: The Psychology of Risk,” Advances in Experimental Psychology 20, 255–295.Google Scholar
  9. Savage, L.J. (1954). The Foundations of Statistics, New York: Wiley; 2nd ed. (1972), New York: Dover.Google Scholar
  10. Schmeidler, D. (1989) “Subjective Probability and Expected Utility without Additivity,” Econometrica 57, 571–587.Google Scholar
  11. Starmer, C. and R., Sugden (1989). “Probability and Juxtaposition Effects: An Experimental Investigation of the Common Ratio Effect,” Journal of Risk and Uncertainty 2, 140–151.Google Scholar
  12. Starmer, C. and R., Sugden. (1991). “Does the Random-Lottery Incentive System Elicit True Preferences? An Experimental Investigation,” American Economic Review 81, 971–978.Google Scholar
  13. Tversky, A. and C., Fox. (1995). “Weighing Risk and Uncertainty,” Psychological Review 102, 269–283.Google Scholar
  14. Tversky, A. and D., Kahneman. (1986). “Rational Choice and the Framing of Decision,” Journal of Business 59, pt. 2, 251–278.Google Scholar
  15. Tversky, A. and D., Kahneman. (1992). “Advances in Prospect Theory: Cumulative Representation of Uncertainty,” Journal of Risk and Uncertainty 5, 297–323.Google Scholar
  16. Tversky, A. and D., Koehler. (1994). “Support Theory: A Nonextensional Representation of Subjective Probability,” Psychological Review 101, 547–567.Google Scholar
  17. Tversky, A. and P.P., Wakker. (1995). “Risk Attitudes and Decision Weights,” Econometrica 63, 1255–1280.Google Scholar
  18. Wakker, P.P. (1996). “The Sure-Thing Principle and the Comonotonic Sure-Thing Principle: An Axiomatic Analysis,” Journal of Mathemetical Economics 25, 213–227.Google Scholar
  19. Wakker, P.P., I., Erev, and E., Weber. (1994). “Comonotonic Independence: The Critical Test between Classical and Rank-Dependent Utility Theories,” Journal of Risk and Uncertainty 9, 195–230.Google Scholar
  20. Weber, E.U. (1994). “From Subjective Probabilities to Decision Weights: The Effects of Asymmetric Loss Functions on the Evaluation of Uncertain Outcomes and Events,” Psychological Bulletin 115, 228–242.Google Scholar
  21. Weber, E.U. and B., Kirsner. (1995). Reasons for Rank-Dependent Utility Evaluation. New York: Center for Decision Research.Google Scholar
  22. Wu, G. and R. Gonzalez. (1994). “Curvature of the Probability Weighting Function,” Management Science, forthcoming.Google Scholar
  23. Wu, G. (1994). “An Empirical test of Ordinal Independence,” Journal of Risk and Uncertainty 9, 39–60.Google Scholar

Copyright information

© Kluwer Academic Publishers 1996

Authors and Affiliations

  • Hein Fennema
    • 1
  • Peter Wakker
    • 2
  1. 1.NICIUniversity of NijmegenNijmegenThe Netherlands
  2. 2.Medical Decision Making UnitUniversity of LeidenLeidenThe Netherlands

Personalised recommendations