Reflection of transitive and intransitive preferences: A test of prospect theory

Budescu, David V.; Weiss, Wendy A.

doi:10.1016/0749-5978(87)90037-9

Cited by 94 publications

(65 citation statements)

References 16 publications

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“…These features address some of the concerns with previous work involving complex lotteries (e.g., Schneider & Lopes 1986; see also Kühberger 1998). However, our findings are somewhat at odds with the results reported by Budescu and Weiss (1987), who found a systematic risk-attitude reversal when comparing choices between gain-only lotteries and choices between their lossonly counterparts. The discrepancy between their study and ours could be attributed to the fact that they considered lotteries with different probability levels, which requires some integration of the subjective representations of outcomes and probabilities (unlike our studies, which attempted to minimize the role of probabilities).…”

Section: Discussioncontrasting

confidence: 57%

“…For example, in empirical research on economics and finance, many scenarios involve risky options with equiprobable outcomes (e.g., stock portfolios; see Levy, 2010), not risky versus riskless options. A categorical distinction between risky and riskless options can be found in several empirical studies: For instance, Schneider and Lopes (1986) found the reflection effect to be extremely irregular when individuals had to choose between pairs of multiple-outcome lotteries (see also Levy, 2010; but see Budescu & Weiss 1987). More recently, Mather et al (2012) showed that younger and older adults manifested the reflection effect when comparing between lotteries (in line with Budescu and Weiss 1987), but noted that both age groups only differed in their risk attitudes when one of the options available was a certain outcome.…”

Section: Towards the Use Of Strong Risk Attitudesmentioning

confidence: 99%

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Individual classification of strong risk attitudes: An application across lottery types and age groups

2017

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Empirical evaluations of risk attitudes often rely on a weak definition of risk that concerns preferences towards risky and riskless options (e.g., a lottery vs. a sure outcome). A large body of work has shown that individuals tend to be weak risk averse in choice contexts involving risky and riskless gains but weak risk seeking in contexts involving losses, a phenomenon known as the reflection effect. Recent attempts to evaluate age differences in risk attitudes have relied on this weak definition, testing whether the reflection effect increases or diminishes as we grow older. The present work argues that weak risk attitudes have limited generalizability and proposes the use of a strong definition of risk that is concerned with preferences towards options with the same expected value but different degrees of risk (i.e., outcome variance). A reanalysis of previouslypublished data and the results from a new study show that only a minority of individuals manifests the reflection effect under a strong definition of risk, and that, when facing certain lottery-pair types, older adults appear to be more risk seeking than younger adults.

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Section: Discussioncontrasting

confidence: 57%

Section: Towards the Use Of Strong Risk Attitudesmentioning

confidence: 99%

Individual classification of strong risk attitudes: An application across lottery types and age groups

2017

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“…Tversky's (1969) conclusions regarding transitivity, however, remained controversial. Although some replicated Tversky's results (Budescu & Weiss, 1987;Lindman & Lyons, 1978;Montgomery, 1977), other investigators did not concede that the apparent violations reported were ''real''. Iverson and Falmagne (1985) reanalyzed Tversky's (1969) data and concluded that if each participant were allowed to have a different transitive order, the data would not require rejection of the null hypothesis of transitivity.…”

supporting

confidence: 61%

Testing for intransitivity of preferences predicted by a lexicographic semi-order

Birnbaum

Gutierrez

2007

Organizational Behavior and Human Decision Processes

124

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A classic paper by Tversky (Tversky, A. (1969). Intransitivity of preferences. Psychological Review, 76,[31][32][33][34][35][36][37][38][39][40][41][42][43][44][45][46][47][48] reported that some people systematically violated transitivity of preference when choosing between specially constructed risky gambles. This conclusion remained controversial because his statistical analysis did not allow each participant to have a different true preference order. Recently, however, it has been argued that an inherently intransitive process governs risky decision making. This paper uses a relatively new statistical technique for testing transitivity and analyzes two new experiments in which hundreds of participants made choices among the same gambles studied by Tversky. It was found that very few people repeated intransitive patterns. The incidence of violation of transitivity was slightly higher when probability was displayed graphically without numerical information, but even in this condition few participants were intransitive. Furthermore, even among those few who appeared to be intransitive, most showed dimension interaction, contrary to implications of the lexicographic semi-order. These results cast doubt on a lexicographic semi-order as a descriptive theory of risky decision making. Ó 2007 Elsevier Inc. All rights reserved.Keywords: Choice; Decision making; Errors; Lexicographic semi-order; Risk; Transitivity; Utility Transitivity of preference is the assumption that if a person prefers A to C and C to E, then that person prefers A to E. This principle is not only assumed by most theoreticians to be a rational principle to obey, but it is also assumed by most, but not all, descriptive theories of risky decision making. It was therefore surprising when May (1954), and later Tversky (1969) reported that some people are systematically intransitive when presented with specially constructed choices. They noted that if real, such findings ruled out many popular descriptive theories.The gambles used by Tversky (1969) are listed in Table 1. Each was a two-branch gamble with probability p to win cash prize x, otherwise receive nothing. These were designed so that if people used a lexicographic semi-order, their preferences would be intransitive. A semi-order (Luce, 1956) has the property that small differences are responded to as if there were no difference. A lexicographic order is illustrated by the task of alphabetizing a list of words. First one examines the first letters in each word, and if they differ, the ranking is based on this letter alone; only if the first letters are the same does one check the second letters, which if different determine the order, and so on (Fishburn, 1971;Hausner, 1954).According to the lexicographic semi-order (LS) interpretation of Tversky's (1969) results, people first compared probabilities to win in the two gambles. When this difference was large enough (greater than D), they chose the gamble with the higher probability to win. However, when this difference was small, they co...

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“…The proposed convex/concave utility function predicts risk-seeking behavior in the domain of losses and risk-averse behavior in the domain of gains. Evidence for convex/concave utility functions across the total outcome domain has been found by Fishburn and Kochenberger (1979), Hershey and Schoemaker (1980), Budescu and Weiss (1987), and Kuhberger et al (1999), among others.…”

Section: Introductionmentioning

confidence: 88%

The Shape of Utility Functions and Organizational Behavior

2003

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B ased on measurements among 332 owner-managers, we investigate how the global shape of the utility function (i.e., S-shaped versus concave or convex over the total range of outcomes) relates to choice behavior. We find that the global shape of the utility function differs across decision makers (about one-third of the owner-managers exhibit an S-shaped utility function) and that the global shape is linked to organizational behavior (i.e., the production system employed), a result that does not change when using different methods to identify the decision maker's global shape of the utility function. The decision maker's risk attitude (risk averse or risk seeking) does not affect the choice of the production system. Whereas the degree of risk aversion, based on the local shape of the utility function, may be important in explaining owner-managers' trading behavior (Pennings and Smidts 2000), more structural organizational behavior appears to be linked to the global shape of the utility fimction.

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Reflection of transitive and intransitive preferences: A test of prospect theory

Cited by 94 publications

References 16 publications

Individual classification of strong risk attitudes: An application across lottery types and age groups

Individual classification of strong risk attitudes: An application across lottery types and age groups

Testing for intransitivity of preferences predicted by a lexicographic semi-order

The Shape of Utility Functions and Organizational Behavior

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