MBS 93-17
Tests of Assumptions About the Joint Receipt of Gambles in Rank- and
Sign- Dependent Utility Theory
Younghee Cho, Duncan Luce, Detlof von Winterfeldt
A rank- and sign- dependent utility theory for monetary certainty equivalents
(CEs) is based on an operation of joint receipt of two gambles in which
each gamble is played independently and the outcomes from both plays are
received (Luce, 1992). One hypothesis, called segregation, states that
a gamble of all gains (losses) is indifferent to the joint receipt of the
smallest gain (loss) together with the gamble that results from subtracting
that amount from each consequence of the original gamble. A second hypothesis,
duplex decomposition, states that a gamble of gains and losses is treated
as indifferent to the joint receipt of the (i) the gamble in which the
status quo replaces the losses together with the independent realization
of the (ii) the gamble in which the status quo replaces the gains. finally,
CEs are assumed to be additive over joint receipt on the sense that the
CE of a joint receipt of the sum of the CEs of the two component gambles.
These three hypotheses were tested using both judged (91 Ss) and choice
(144 Ss) Ces. The median judged CEs failed segregation, supported duplex
decomposition, and provided a split conclusion for the additivity of joint
receipt of gambles. A possible experimental artifact underlying the failure
of segregation is described and median judged CEs with selected subjects
supported segregation. The median judged CEs with selected subjects supported
segregation. The median choice CEs provided support for both segregation
and duplex decomposition, but little support for additivity in gains or
in losses.