An Experimental Test of Several Generalized Utility Theories

There is much evidence that people willingly violate expected utility theory when making choices. Several axiomatic theories have been proposed to explain some of this evidence, but there are few data that discriminate between the theories. To gather such data, an experiment was conducted using pairs of gambles with three levels of outcomes and many combinations of probabilities. Most typical findings were replicated, including the common consequence effect and different risk attitudes for gains and losses. There is evidence of both fanning out and fanning in of indifference curves, and both quasiconcavity and quasiconvexity of preferences. No theory can explain all the data, but prospect theory and the hypothesis that indifference curves fan out can explain most of them