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

Despoina Alempaki (), Emina Canic (), Timothy L. Mullett (), William J. Skylark (), Chris Starmer, Neil Stewart () and Fabio Tufano
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Despoina Alempaki: Warwick Business School, University of Warwick, Coventry CV4 7AL, United Kingdom
Emina Canic: Department of Psychology, University of Warwick, Coventry CV4 7AL, United Kingdom
Timothy L. Mullett: Warwick Business School, University of Warwick, Coventry CV4 7AL, United Kingdom
William J. Skylark: Department of Psychology, University of Cambridge, Cambridge CB2 3EB, United Kingdom
Neil Stewart: Warwick Business School, University of Warwick, Coventry CV4 7AL, United Kingdom

Management Science, 2019, vol. 65, issue 10, 4841-4862

Abstract: In a paper published in Management Science in 2015, Stewart, Reimers, and Harris (SRH) 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 in which 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. Although 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.

Keywords: utility; probability weighting; replication; decision by sampling; risky choice (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:65:y:2019:i:10:p:4841-4862

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