Laterality effects in risk preference: A test of portfolio theory

Abstract

A central assumption in portfolio theory of risk preference is that for games with expected value constant the preference ordering of an individual should exhibit a single peaked preference function. This assumption was tested by determining the level of stochastic transitivity satisfied by triples of pairwise preference proportions among eight gambles. In only a small percentage of cases were the predicted levels of stochastic transitivity not satisfied. It was concluded that the results provided strong support for portfolio theory.