Non‐transitive Choice: Event‐Splitting Effects or Framing Effects?

Humphrey, Steven J.

doi:10.1111/1468-0335.00234

Cited by 27 publications

(37 citation statements)

References 12 publications

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“…Another possible explanation is that PR arises as a consequence of context-free, but nontransitive preferences. Persistent non-transitive cycles of choice analogous to PR have been observed in experimental studies Sugden 1989, 1991;Humphrey 2001), but the only preference theory that has been put forward to explain such behaviour is regret theory (Bell 1982;Loomes and Sugden 1983), which has failed other tests (Starmer and Sugden 1998). A third approach is to explain PR by supplementing a conventional theory of preferences with some mechanism of stochastic error; but this has been shown to be empirically unconvincing (Schmidt and Hey 2004).…”

Section: Discussionmentioning

confidence: 99%

Third-generation prospect theory

2008

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We present a new theory of decision under uncertainty: third-generation prospect theory (PT 3 ). This retains the predictive power of previous versions of prospect theory, but extends that theory by allowing reference points to be uncertain while decision weights are specified in a rank-dependent way. We show that PT 3 preferences respect a state-conditional form of stochastic dominance. The theory predicts the observed tendency for willingness-to-accept valuations of lotteries to be greater than willingness-to-pay valuations. When PT 3 is made operational by using simple functional forms with parameter values derived from existing experimental evidence, it predicts observed patterns of the preference reversal phenomenon. Keywords Prospect theory . Preference reversal . Reference dependence JEL Classification D81In this paper we present a new theory of decision under uncertainty: third-generation prospect theory (PT 3 for short). The motivation for the theory is empirical: our model is presented as a descriptive theory intended to outperform the current 'best buys' in the literature. PT 3 has three key features: reference dependence, decision weights and uncertain reference points (i.e. reference points that can be lotteries). The first two features are the common characteristics of different versions of prospect theory, including the original (or first-generation) version (Kahneman and J Risk Uncertainty

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Section: Discussionmentioning

confidence: 99%

Third-generation prospect theory

2008

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“…In this literature, investigators analyze frequencies of response patterns, which is a better way to present the data. Studies found that violations of transitivity predicted by regret theory are more frequent than violations of the opposite pattern (Humphrey, 2001;Loomes, Starmer, & Sugden, 1989, 1991Loomes & Taylor, 1992;Starmer & Sugden, 1998). Starmer (1999) also used this criterion of asymmetry to argue for another type of intransitivity.…”

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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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“…A number of previous studies attempted to test transitivity Loomes et al 1989Loomes et al , 1991Loomes and Taylor 1992;Humphrey 2001;Starmer 1999;Starmer and Sugden 1998;Tversky 1969). However, these studies remain controversial; there is not yet consensus that there are situations that produce substantial violations of transitivity (Luce 2000;Iverson and Falmagne 1985;Iverson et al 2006;Regenwetter andStober 2006, Sopher andGigliotti 1993;Stevenson et al 1991).…”

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confidence: 99%

“…] A problem in previous empirical tests of regret theory is that certain confounds were present in those studies (Humphrey 2001;Starmer and Sugden 1998). Probably the most important problem was that different forms of the gambles were used in different choices.…”

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confidence: 99%

“…Starmer and Sugden (1998) and Humphrey (2001) recognized this confound and controlled for it by presenting choices in fully split forms or by using a different format for display ("strip") in which gambles were presented in fully coalesced form. But those articles had a second problem; namely, they used asymmetry of different types of intransitivity as evidence of intransitivity.…”

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