PERFORMANCE OF THE SIMILARITY HYPOTHESIS RELATIVE TO EXISTING MODELS OF RISKY CHOICE

Experimental studies have discovered behavior that is inconsistent wit h the expected utility model (EU) of risky choice (von Neumann and Mor genstern, 1953). The two approaches to address these paradoxes are tes ted: generalized expected utility models (GEU) and models incorporatin g decision-making limits or costs through question similarity. Tests a re carried out over risky pairs related to well-known examples from Ka hneman and Tversky's (1979) influential work. Statistical analysis rev eals that GEU models of choice are significantly violated for choice p atterns consistent with the similarity hypothesis. Additional tests po int to shortcomings in the similarity approach that are consistent wit h fanning out behavior.