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Dominance violations in judged prices of two‐ and three‐outcome gambles
Author(s) -
Mellers Barbara A.,
Berretty Patricia M.,
Birnbaum Michael H.
Publication year - 1995
Publication title -
journal of behavioral decision making
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.136
H-Index - 76
eISSN - 1099-0771
pISSN - 0894-3257
DOI - 10.1002/bdm.3960080305
Subject(s) - outcome (game theory) , weighting , dominance (genetics) , stochastic dominance , zero (linguistics) , prospect theory , econometrics , set (abstract data type) , economics , incentive , mathematical economics , psychology , microeconomics , computer science , medicine , biochemistry , chemistry , linguistics , philosophy , gene , programming language , radiology
The dominance principle states that one should prefer the option with consequences that are at least as good as those of other options for any state of the world. When applied to judged prices of gambles, the dominance principle requires that increasing one or more outcomes of a gamble should increase the judged price of the gamble, with everything else held constant. Previous research has uncovered systematic violations of the dominance principle: people assign higher prices to a gamble with a large probability of winning an amount, Y, otherwise zero, than they do to a superior gamble with the same chance of winning Y, otherwise winning a small amount, X! These violations can be explained by a configural‐weight theory in which two‐outcome gambles are represented with two sets of decision weights; one set for outcomes having values of zero and another set for lower‐valued outcomes that have nonzero values. The present paper investigates whether dominance violations are limited to two‐outcome gambles. Results show that people violate the dominance principle with three‐outcome gambles even with financial incentives. Furthermore, results could be predicted from the configural‐weight theory. The data do not support the view that configural weighting is caused by a shift in strategy that would apply only to two‐outcome gambles.