Journal of Risk and Uncertainty

, Volume 9, Issue 2, pp 151–172 | Cite as

Generalized similarity judgments: An alternative explanation for choice anomalies

  • Jonathan W. Leland
Article

Abstract

Rubinstein's (1988) procedure for choosing between risky prospects, based, in part, upon similarities between prizes and probabilities across lotteries, is modified and extended to apply to a more general class of binary choices. This modified procedure is shown to imply behaviors following from Loomes and Sugden's (1982) Regret Theory, although under more general conditions, and provides an alternative explanation for much of the data which led to the specification of Prospect Theory's value and decision weighing functions. The procedure also explains observed violations of stochastic dominance, transitivity, and invariance not accounted for in available alternatives to expected utility.

Key words

choice anomalies expected utility similarity judgments 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Allais, M. (1953). “Le Comportement de l'homme rationel devant le Risque, critique des postulates et axiomes de l'ecole americane,”Econometrica 21, 503–546.Google Scholar
  2. Battalio, R., J. Kagel, and R. Kiranyakul. (1990). “Testing Between Alternative Models of Choice Under Uncertainty: Some Initial Results,”Journal of Risk and Uncertainty 3(1), 25–50.Google Scholar
  3. Camerer, C. (1989). “An Experimental Test of Several Generalized Utility Theories,”Journal of Risk and Uncertainty 2(1), 61–104.Google Scholar
  4. Friedman M., and L. Savage. (1948). “The Utility Analysis of Choices Involving Risk,”The Journal of Political Economy 56, 279–304.Google Scholar
  5. Grether, D., and C. Plott. (1979). “Economic Theory of Choice and the Preference Reversal Phenomenon,”The American Economic Review 69, 623–638.Google Scholar
  6. Harless, D. (1992). “Actions Versus Prospects: The Effects of Problem Representation on Regret,”The American Economic Review 82, 634–650.Google Scholar
  7. Kahneman, D., and A. Tversky. (1979). “Prospect Theory: An Analysis of Decisions Under Uncertainty,”Econometrica 47, 263–291.Google Scholar
  8. Leland, J. (1991). “Choice Paradoxes as Decision Errors,” Carnegie Mellon University Working Paper.Google Scholar
  9. Leland, J. (1992). “Similarity, Intransitivities, and the Preference Reversal Phenomenon,” Carnegie Mellon University Working Paper.Google Scholar
  10. Lichtenstein, S., and P. Slovic. (1971). “Reversals of Preference Between Bids and Choices in Gambling Decisions,”Journal of Experimental Psychology 89, 46–55.Google Scholar
  11. Loomes, G. (1988). “Further Evidence on the Impact of Regret and Disappointment in Choice Under Uncertainty,”Economica 55, 47–62.Google Scholar
  12. Loomes, G., C. Starmer, and R. Sugden. (1991). “Observing Violations of Transitivity by Experimental Methods,”Econometrica 59, 425–439.Google Scholar
  13. Loomes, G., C. Starmer, and R. Sugden. (1992). “Are Preferences Monotonic? Testing Some Predictions of Regret Theory,”Economica 59, 17–33.Google Scholar
  14. Loomes, G., and R. Sugden. (1982). “Regret Theory: An Alternative Theory of Rational Choice Under Uncertainty,”The Economic Journal 92, 805–824.Google Scholar
  15. Loomes, G., and R. Sugden. (1987). “Testing for Regret and Disappointment in Choice Under Uncertainty,”The Economic Journal 97, 118–129.Google Scholar
  16. Loomes, G., and C. Taylor. (1992). “Non-transitive Preferences over Gains and Losses,”The Economic Journal 102, 357–365.Google Scholar
  17. Moskowitz, H. (1974). “Effects of Problem Representation and Feedback on Rational Behavior in Allais and Morlat-type Problems,”Decisions Sciences 5, 225–242.Google Scholar
  18. Kakamura, Y. (1988). “Expected Utility with an Interval Order,”Journal of Mathematical Psychology 32, 298–312.Google Scholar
  19. Rubinstein, A. (1988). “Similarity and Decision-making Under Risk (Is There a Utility Theory Resolution to the Allais Paradox?),”Journal of Economic Theory 46, 145–153Google Scholar
  20. Slovic, P., and A. Tversky. (1974). “Who Accepts the Savage Axiom,”Behavioral Science 19, 368–373.Google Scholar
  21. Starmer, C, and R. Sugden. (1987). “Experimental Evidence of the Impact of Regret on Choice Under Uncertainty,” The Economics Research Center, Discussion Paper #23.Google Scholar
  22. Starmer, C., and R. Sugden. (1989). “Probability and Juxtaposition Effects: An Experimental Investigation of the Common Ratio Effect,”Journal of Risk and Uncertainty 2(2), 159–178.Google Scholar
  23. Tversky, A. (1969). “Intransitivity of Preferences,”Psychological Review 76, 31–48.Google Scholar
  24. Tversky, A., and D. Kahneman (1986). “Rational Choice and the Framing of Decisions,”Journal of Business, S251–S278.Google Scholar
  25. Vincke, P. (1980). “Linear Utility Functions on Semiordered Spaces,”Econometrica 48, 771–775.Google Scholar

Copyright information

© Kluwer Academic Publishers 1994

Authors and Affiliations

  • Jonathan W. Leland
    • 1
  1. 1.Department of Social & Decision SciencesCarnegie Mellon UniversityUSA

Personalised recommendations