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42
New tests of cumulative prospect theory and the priority heuristic: Probabilityoutcome tradeoff with branch splitting
 Judgment and Decision Making
"... tradeoff with branch splitting ..."
Hierarchical Bayesian parameter estimation for cumulative prospect theory
, 2011
"... a b s t r a c t Cumulative prospect theory (CPT Tversky & Kahneman, 1992) has provided one of the most influential accounts of how people make decisions under risk. CPT is a formal model with parameters that quantify psychological processes such as loss aversion, subjective values of gains and ..."
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a b s t r a c t Cumulative prospect theory (CPT Tversky & Kahneman, 1992) has provided one of the most influential accounts of how people make decisions under risk. CPT is a formal model with parameters that quantify psychological processes such as loss aversion, subjective values of gains and losses, and subjective probabilities. In practical applications of CPT, the model's parameters are usually estimated using a singleparticipant maximum likelihood approach. The present study shows the advantages of an alternative, hierarchical Bayesian parameter estimation procedure. Performance of the procedure is illustrated with a parameter recovery study and application to a real data set. The work reveals that without particular constraints on the parameter space, CPT can produce loss aversion without the parameter that has traditionally been associated with loss aversion. In general, the results illustrate that inferences about people's decision processes can crucially depend on the method used to estimate model parameters.
Testing lexicographic semiorders as models of decision . . .
 JOURNAL OF MATHEMATICAL PSYCHOLOGY
, 2010
"... ..."
Discriminating among probability weighting functions using adaptive design optimization
 Journal of Risk and Uncertainty
, 2013
"... Probability weighting functions relate objective probabilities and their subjective weights, and play a central role in modeling choices under risk within cumulative prospect theory. While several different parametric forms have been proposed, their qualitative similarities make it challenging to di ..."
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Cited by 5 (4 self)
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Probability weighting functions relate objective probabilities and their subjective weights, and play a central role in modeling choices under risk within cumulative prospect theory. While several different parametric forms have been proposed, their qualitative similarities make it challenging to discriminate among them empirically. In this paper, we use both simulation and choice experiments to investigate the extent to which different parametric forms of the probability weighting function can be discriminated using adaptive design optimization, a computerbased methodology that identifies and exploits model differences for the purpose of model discrimination. The simulation experiments show that the correct (datagenerating) form can be conclusively discriminated from its competitors. The results of an empirical experiment reveal heterogeneity between participants in terms of the functional form, with two models (Prelec2, Linear in Log Odds) emerging as the most common bestfitting models. The findings shed light on assumptions underlying these models.
Separating response variability from structural inconsistency to test models of . . .
, 2012
"... ..."
Tests of Cumulative Prospect Theory with graphical displays of probability
"... Recent research reported evidence that contradicts cumulative prospect theory and the priority heuristic. The same body of research also violates two editing principles of original prospect theory: cancellation (the principle that people delete any attribute that is the same in both alternatives bef ..."
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Cited by 2 (1 self)
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Recent research reported evidence that contradicts cumulative prospect theory and the priority heuristic. The same body of research also violates two editing principles of original prospect theory: cancellation (the principle that people delete any attribute that is the same in both alternatives before deciding between them) and combination (the principle that people combine branches leading to the same consequence by adding their probabilities). This study was designed to replicate previous results and to test whether the violations of cumulative prospect theory might be eliminated or reduced by using formats for presentation of risky gambles in which cancellation and combination could be facilitated visually. Contrary to the idea that decision behavior contradicting cumulative prospect theory and the priority heuristic would be altered by use of these formats, however, data with two new graphical formats as well as fresh replication data continued to show the patterns of evidence that violate cumulative prospect theory, the priority heuristic, and the editing principles of combination and cancellation. Systematic violations of restricted branch independence also contradicted predictions of “stripped ” prospect theory (subjectively weighted additive utility without the editing rules).
Testing Independence Conditions in the Presence of Errors and Splitting Effects
, 1614
"... This paper presents an experimental test of several independence conditions implied by expected utility and alternative models. We perform a repeated choice experiment and fit an error model that allows us to discriminate between true violations of independence and those that can be attributed to er ..."
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This paper presents an experimental test of several independence conditions implied by expected utility and alternative models. We perform a repeated choice experiment and fit an error model that allows us to discriminate between true violations of independence and those that can be attributed to errors. In order to investigate the role of event splitting effects, we present each choice problem not only in coalesced form (as in most previous studies) but also in split form. It turns out previously reported violations of independence and splitting effects remain significant even when controlling for errors. Splitting effects have a substantial influence on the tests of independence conditions. When choices are presented in canonical split form, in which probabilities on corresponding probabilityconsequence ranked branches are equal, violations of the independence conditions we tested become
Behavioural Finance
, 2007
"... An introduction to behavioural finance, including a review of the major works and a summary of important heuristics. 1 ..."
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An introduction to behavioural finance, including a review of the major works and a summary of important heuristics. 1
New paradoxes in intertemporal choice
 Judgment and Decision Making
, 2011
"... Similar to research on risky choice, the traditional analysis of intertemporal choice takes the view that an individual behaves so as to maximize the discounted sum of all future utilities. The wellknown Allais paradox contradicts the fundamental postulates of maximizing the expected value or utili ..."
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Similar to research on risky choice, the traditional analysis of intertemporal choice takes the view that an individual behaves so as to maximize the discounted sum of all future utilities. The wellknown Allais paradox contradicts the fundamental postulates of maximizing the expected value or utility of a risky option. We describe a violation of the law of diminishing marginal utility as well as an intertemporal version of the Allais paradox.
Form
, 1615
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