Abstract
This paper examines a type of nonexpected utility called "expected utility theory with rank dependent probabilities" (EURDP) with respect to implications regarding dominance tests and risk aversion. EURDP uses two behavioral functions to represent preference: a utility function over outcomes and a transformation function applied to the cumulative distribution function. Properties of these functions are identified which make the preference order consistent with second-order stochastic dominance. Properties of the transformation function are shown to have interpretations in terms of optimism, pessimism, and risk aversion. Some well-known experiments are reexamined to make inferences about the nature of the transformation function.
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