Bray Theory Workshop

Abstract

This paper asks whether the rank-dependent probability distortions of Cumulative Prospect Theory (CPT) (Kahneman and Tversky, 1992) are empirically valid. Our test investigates whether individuals distort the probability associated with a given outcome differently depending on where the outcome is ranked. The data compellingly show a lack of empirical validity for CPT. Though, as ranks change, CPT predicts changes in valuations on the order of 30%, we find virtually no change in  behavior. Such data is critical for understanding whether the advance provided by rank dependence has any foundation in the psychology of decision making.