Theory and Decision

, Volume 71, Issue 3, pp 431–438 | Cite as

Empirical rules of thumb for choice under uncertainty



A substantial body of empirical evidence shows that individuals overweight extreme events and act in conflict with the expected utility theory. These findings were the primary motivation behind the development of a rank-dependent utility theory for choice under uncertainty. The purpose of this paper is to demonstrate that some simple empirical rules of thumb for choice under uncertainty are consistent with the rank-dependent utility theory.


Rank-dependent utility Maximin Maximax Mid-range 

JEL Classification



Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Allais M. (1953) Le Compartement de l’Homme Rational Devant le Risque, Critique des Postulates et Axiomes de l’Ecole Americaine. Econometrica 21: 503–546CrossRefGoogle Scholar
  2. Barrett R. C., Pattanaik P. K. (1994) Decision making under complete uncertainty. In: Dickinson D. G., Driscoll M. J., Sen S. (eds) Risk and uncertainty in economics: Essays in honour of James L. Ford. Elgar, AldershotGoogle Scholar
  3. Bernoulli D. (1738) Specimen Theoriae Novae de Mensura Sortis. Econometrica 22(1954): 23–36Google Scholar
  4. Chew S., Karni E., Safra Z. (1987) Risk aversion in the theory of expected utility with rank dependent preferences. Journal of Economic Theory 42: 370–381CrossRefGoogle Scholar
  5. Diecidue E., Wakker P. (2001) On the intuition of rank-dependent utility. The Journal of Risk and Uncertainty 23: 281–298CrossRefGoogle Scholar
  6. Edwards W. (1955) The prediction of decisions among bets. Journal of Experimental Psychology 50: 201–214CrossRefGoogle Scholar
  7. Edwards W. (1962) Subjective probabilities inferred from decisions. Psychological Review 69: 109–135CrossRefGoogle Scholar
  8. Friedman M., Savage L. J. (1948) The utility analysis of choices involving risk. Journal of Political Economy 56: 279–304CrossRefGoogle Scholar
  9. Kahneman D., Tversky A. (1979) Prospect theory: An analysis of decision under risk. Econometrica 47: 263–293CrossRefGoogle Scholar
  10. Karni, E., & Schmeidler, D. (1991). Utility with uncertainty. In W. Hildenbrand & H. F. Sonnenschein (Eds.), Handbook of mathematical economics, Vol. 4, Chapter 33 (pp 1763–1831). North-Holland: Amsterdam.Google Scholar
  11. Kelsey D. (1993) Choice under partial uncertainty. International Economic Review 34: 297–308CrossRefGoogle Scholar
  12. MacCrimmon K. (1968) Descriptive and normative implications of the decision theory postulates. In: Borch K., Mossin J. (eds) Risk and uncertainty. MacMillan, LondonGoogle Scholar
  13. Quiggin J. (1981) Risk perception and risk aversion among Australian farmers. Australian Journal of Agricultural Economics 25: 160–169Google Scholar
  14. Quiggin J. (1982) A theory of anticipated utility. Journal of Economic Behavior and Organization 3: 323–343CrossRefGoogle Scholar
  15. Quiggin J. (1987) Decision weights in anticipated utility theory. Journal of Economic Behavior and Organization 8: 641–645CrossRefGoogle Scholar
  16. Quiggin J. (1992) Generalized expected utility theory—The rank-dependent model. Kluwer Academic Press, DordrechtGoogle Scholar
  17. Quiggin J., Wakker P. (1994) The axiomatic basis of anticipated utility: A clarification. Journal of Economic Theory 64: 486–499CrossRefGoogle Scholar
  18. Ramsey, F. P. (1926). Truth and probability. In R. B. Braithwaite (Ed.), Foundations of mathematics and other logical essays. London: Routledge and Kegan Paul, 1931.Google Scholar
  19. Savage L. J. (1954) The foundations of statistics. Wiley, New YorkGoogle Scholar
  20. Segal U. (1987a) Axiomatic representation of expected utility with rank-dependent probabilities. Annals of Operational Research 19: 359–373CrossRefGoogle Scholar
  21. Segal U. (1987b) Some remarks on Quiggin’s anticipated utility. Journal of Economic Behavior and Organization 8: 145–154CrossRefGoogle Scholar
  22. Von Neumann J., Morgenstern O. (1944) Theory of games and economic behavior. Princeton University Press, PrincetonGoogle Scholar
  23. Yaari M. E. (1987) The dual theory of choice under risk. Econometrica 55: 95–115CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC. 2010

Authors and Affiliations

  1. 1.Research DepartmentStatistics NorwayOsloNorway

Personalised recommendations