Web-Based Program of Research on Risky Decision Making

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Web-Based Program of Research on Risky Decision
Making

• Michael H. Birnbaum
• California State University, Fullerton

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1967
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1967
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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.

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Cumulative Prospect Theory/ Rank-Dependent
Utility (RDU)
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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)

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RAM/TAX Models
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RAM Model Parameters
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RAM implies inverse-S
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Decision Theories and Allais Paradox
Branch Independence Branch Independence
Coalescing Satisfied Violated
Satisfied EU, CPT OPT RDU, CPT
Violated SWU, OPT RAM, TAX
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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

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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.

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For More Information
mbirnbaum_at_fullerton.edu
http//psych.fullerton.edu/mbirnbaum/
Download recent papers from this site. Follow
links to brief vita and then to in press for
recent papers.