Web-Based Program of Research on Risky Decision Making - PowerPoint PPT Presentation

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Web-Based Program of Research on Risky Decision Making

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Title: Web-Based Program of Research on Risky Decision Making


1
Web-Based Program of Research on Risky Decision
Making
  • Michael H. Birnbaum
  • California State University, Fullerton

2
1967
3
1967
4
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.

5
Cumulative Prospect Theory/ Rank-Dependent
Utility (RDU)
6
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)

7
RAM/TAX Models
8
RAM Model Parameters
9
RAM implies inverse-S
10
Decision Theories and Allais Paradox
Branch Independence Branch Independence
Coalescing Satisfied Violated
Satisfied EU, CPT OPT RDU, CPT
Violated SWU, OPT RAM, TAX
11
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

12
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.

13
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.
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