Preponderence of the Certainty Effect Over Probability Distortion in Decision Making Under Risk

Abstract

The appeal of expected utility (EU) theory — the standard model of decision analysis — as a normative model is not necessatily lessened by its poor quality as a descriptive model. As a matter of fact, observations of systematic violations of EU in Allais [1], Kahneman and Tversky [7], Mac Crimmon and Larsson [15], Kunreuther [10], Schoemaker [17] and elsewhere have had no apparent effect on its popularity.