Journal of Risk and Uncertainty

, Volume 9, Issue 1, pp 39–60 | Cite as

An empirical test of ordinal independence

  • George Wu
Article

Abstract

In this article, we test Green and Jullien's (1988) Ordinal Independence (OI) Axiom, an axiom necessary for any rank-dependent expected utility (RDEU) model, including Cumulative Prospect Theory (Tversky and Kahneman, 1992). We observe systematic violations of OI (some within-subject violation rates of over 50%). These patterns of choice cannot be explained by any RDEU theory alone. We suggest that subjects are employing an editing operation prior to evaluation: if an outcome-probability pair is common to both gambles, it is cancelled when the commonality is transparent; otherwise, it is not cancelled. We interpret the results with respect to both original and cumulative prospect theory and the known empirical properties of the weighting function.

Key words

ordinal independence rank-dependent expected utility prospect theory editing 

JEL Classification

D80 

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Copyright information

© Kluwer Academic Publishers 1994

Authors and Affiliations

  • George Wu
    • 1
  1. 1.Harvard Business SchoolManagerial EconomicsBoston

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