Violations of Cumulative Prospect Theory in Mixed Gambles with Moderate Probabilities

Guido Baltussen, Thierry Post, Pim van Vliet

Management Science · 2006 · Volume 52 · Issue 8

Abstract

In a classroom choice experiment with mixed gambles and moderate probabilities, we find severe violations of cumulative prospect theory (CPT) and of Markowitz stochastic dominance. Our results shed new light on the exchange between Levy and Levy (2002) and Wakker (2003) in this journal.

Keywords

cumulative prospect theory, expected utility, mixed gambles, stochastic dominance, individual decision making under risk

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