Violations of Dominance in Pricing Judgments

Barbara Mellers, Robin Weiss and Michael Birnbaum

Journal of Risk and Uncertainty, 1992, vol. 5, issue 1, 73-90

Abstract: The dominance principle states that the judged price of gamble A should be equal to or greater than the judged price of gamble B whenever A's outcomes are equal to or better than the corresponding outcomes of B, holding everything else constant. Subjects often violate the dominance principle by assigning a higher price to a gamble with some probability of winning a positive amount, Y, otherwise zero, than to a superior gamble with the same chances of winning Y, otherwise winning X. Violations also occur with losses. Results are consistent with a configural-weight theory in which the decision weight for coach outcome depends on the rank of the outcome with respect to the other outcomes in the lottery and the value of the outcome (zero vs. nonzero). Copyright 1992 by Kluwer Academic Publishers

Date: 1992
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