Abstract:In imperfectly discriminating contests the contestants contribute effort to win a prize but the highest contributed effort does not necessarily secure a win. The contest success function (CSF) is the technology that translates an individual's effort into his or her probability of winning. This paper provides an axiomatization of CSF when there is the possibility of a draw (the sum of winning probabilities across all contestants is non-additive).

We select a menu of seven popular decision theories and embed each theory in five models of stochastic choice, including tremble, Fechner and random utility model. We find that the estimated parameters of decision theories differ significantly when theories are combined with different models. Depending on the selected model of stochastic choice we obtain different rankings of decision theories with regard to their goodness of fit to the data. The fit of all analyzed decision theories improves significantly when they are embedded in a Fechner model of heteroscedastic truncated errors or a random utility model. Copyright © 2009 John Wiley & Sons, Ltd.

This paper proposes a new decision theory of how individuals make random errors when they compute the expected utility of risky lotteries. When distorted by errors, the expected utility of a lottery never exceeds (falls below) the utility of the highest (lowest) outcome. This assumption implies that errors are likely to overvalue (undervalue) lotteries with expected utility close to the utility of the lowest (highest) outcome. Proposed theory explains many stylized empirical facts such as the fourfold pattern of risk attitudes, common consequence effect (Allais paradox), common ratio effect and violations of betweenness. Theory fits the data from ten well-known experimental studies at least as well as cumulative prospect theory. Copyright Springer Science+Business Media, LLC 2007Decision theory, Stochastic utility, Expected utility theory, Cumulative prospect theory, C91, D81,

The transitivity axiom is common to nearly all descriptive and normative utility theories of choice under risk. Contrary to both intuition and common assumption, the little-known 'Steinhaus-Trybula paradox' shows the relation 'stochastically greater than' will not always be transitive, in contradiction of Weak Stochastic Transitivity. We bespoke-design pairs of lotteries inspired by the paradox, over which individual preferences might cycle. We run an experiment to look for evidence of cycles, and violations of expansion/contraction consistency between choice sets. Even after considering possible stochastic but transitive explanations, we show that cycles can be the modal preference pattern over these simple lotteries, and we find systematic violations of expansion/contraction consistency.

The conventional parameterizations of cumulative prospect theory do not explain the St. Petersburg paradox. To do so, the power coefficient of an individual's utility function must be lower than the power coefficient of an individual's probability weighting function.expected utility theory, cumulative prospect theory, St. Petersburg paradox, power utility, probability weighting