Robustness of Rank Independence in Risky Choice

Abstract

Bernheim and Sprenger (2020) devise and implement a novel test of rank-dependent probability weighting both in general and as formulated in cumulative prospect theory. They reject both hypotheses decisively. Cumulative prospect theory cannot simultaneously account for the rank independence of “equalizing reductions” for three-outcome lotteries, which it construes as indicating linear probability weighting, and the relationship between equalizing reductions and probabilities, which it interprets as indicating highly nonlinear probability weighting. In the current paper, we explore the robustness of the first finding, rank independence of equalizing reductions (and hence of decision weights), with respect to alternative experimental procedures.