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Journal of Risk and Uncertainty

, Volume 6, Issue 2, pp 115–143 | Cite as

Is choice the correct primitive? On using certainty equivalents and reference levels to predict choices among gambles

  • R. Duncan Luce
  • Barbara A. Mellers
  • Shi -Jie Chang
Article

Abstract

Choice is viewed as a derived, not a primitive, concept. Individual gambles are assigned subjective certainty equivalents (CE1); the choice setX has an associated reference level [RL(X)] based on the CE1S of its members; the outcomes of each gamble are recoded as deviations from the RL(X); and new CE2S are constructed. The gamble having the largest CE2 is chosen. The CEs are described by the rank-and sign-dependent theory of Luce (1992b). The concept of RL is studied axiomatically. The model predicts many behavioral anomalies and is tested with data sets of Mellers, Chang, Birnbaum, and Ordóñez (1992).

Key words

certainty equivalents reference levels rank- and sign-dependent utility 

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Copyright information

© Kluwer Academic Publishers 1993

Authors and Affiliations

  • R. Duncan Luce
    • 1
  • Barbara A. Mellers
    • 2
  • Shi -Jie Chang
    • 2
  1. 1.Institute for Mathematical Behavioral Science, Social Science TowerUniversity of California at IrvineIrvine
  2. 2.University of California at BerkeleyBerkeley

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