Web-Based Program of Research on Risky Decision Making Michael H. Birnbaum California State University, Fullerton.

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Presentation transcript:

Web-Based Program of Research on Risky Decision Making Michael H. Birnbaum California State University, Fullerton

1967

Web-Based Research Series of Studies tests classical and new paradoxes in decision making. People come on-line via WWW (some in lab). Choose between gambles; 1 person per month (about 1% of participants) wins the prize of one of their chosen gambles. Data arrive 24-7; sample sizes are large; results are clear.

Cumulative Prospect Theory/ Rank-Dependent Utility (RDU)

Cumulative Prospect Theory/ RDU Tversky & Kahneman (1992) CPT is more general than EU or (1979) PT, accounts for risk-seeking, risk aversion, sales and purchase of gambles & insurance. Accounts for Allais Paradoxes, chief evidence against EU theory. Accounts for certain violations of restricted branch independence. Nobel Prize in Economics (2002)

RAM/TAX Models

RAM Model Parameters

RAM implies inverse- S

Decision Theories and Allais Paradox Branch Independence CoalescingSatisfiedViolated SatisfiedEU, CPT* OPT* RDU, CPT* ViolatedSWU, OPT*RAM, TAX

Case against CPT/RDU Violations of Stochastic Dominance Violations of Coalescing (Event-Splitting) Violations of 3-Upper Tail Independence Violations of Lower Cumulative Independence Violations of Upper Cumulative Independence

More Evidence against CPT/RDU/RSDU Violations of Restricted Branch Independence are opposite predictions of inverse-S weighting function needed to explain the Allais Paradoxes. Violations of distribution independence favor RAM over TAX and also opposite of predictions of CPT with inverse-S.

For More Information: Download recent papers from this site. Follow links to “brief vita” and then to “in press” for recent papers.