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Reexamining How Utility and Weighting Functions Get Their Shapes: A Quasi-Adversarial Collaboration Providing a New Interpretation

Alempaki, Despoina; Canic, Emina; Mullett, Timothy; Skylark, William; Starmer, Chris; Stewart, Neil; Tufano, Fabio

Authors

Despoina Alempaki

Emina Canic

Timothy Mullett

William Skylark

CHRIS STARMER chris.starmer@nottingham.ac.uk
Professor of Experimental Economics

Neil Stewart



Abstract

Stewart, Reimers and Harris (2015, SRH hereafter) demonstrated that shapes of utility and probability weighting functions could be manipulated by adjusting the distributions of outcomes and probabilities on offer, as predicted by the theory of Decision by Sampling. So marked were these effects that, at face value, they profoundly challenge standard interpretations of preference theoretic models where such functions are supposed to reflect stable properties of individual risk preferences. Motivated by this challenge, we report an extensive replication exercise based on a series of experiments conducted as a quasi-adversarial collaboration across different labs and involving researchers from both economics and psychology. We replicate the SRH effect across multiple experiments involving changes in many design features; importantly, however, we find that the effect is also present in designs modified so that Decision by Sampling predicts no effect. While those results depend on model-based inferences, an alternative analysis using a model free comparison approach finds no evidence of patterns akin to the SRH effect. On the basis of simulation exercises, we demonstrate that the SRH effect may be a consequence of misspecification biases arising in parameter recovery exercises that fit imperfectly specified choice models to experimental data. Overall, our analysis casts the SRH effect in an entirely new light.

Journal Article Type Article
Publication Date Aug 1, 2019
Journal Management Science
Print ISSN 0025-1909
Electronic ISSN 1526-5501
Publisher INFORMS
Peer Reviewed Peer Reviewed
Volume 65
Issue 10
Pages 4451-4949
APA6 Citation Alempaki, D., Canic, E., Mullett, T., Skylark, W., Starmer, C., Stewart, N., & Tufano, F. (2019). Reexamining How Utility and Weighting Functions Get Their Shapes: A Quasi-Adversarial Collaboration Providing a New Interpretation. Management Science, 65(10), 4451-4949. https://doi.org/10.1287/mnsc.2018.3170
DOI https://doi.org/10.1287/mnsc.2018.3170
Keywords utility, probability weighting, replication, Decision by Sampling, risky choice
Publisher URL https://pubsonline.informs.org/doi/10.1287/mnsc.2018.3170
Copyright Statement Copyright information regarding this work can be found at the following address: http://eprints.nottingh.../end_user_agreement.pdf

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