Do generalized expected utility theories capture persisting properties of individual decision makers?

Expected utility theory and two generalizations of it (rank-dependent utili ty theory and cumulative prospect theory), which have been proposed to desc ribe individuals' risky choice behavior, have been examined. A characterist ic feature of these models is subjective weighting of outcomes and probabil ities. This study investigates whether individually determined weighting fu nctions (utility functions and weighting functions for probabilities) captu re individual traits of decision makers. To verify this, temporal constancy of individual subjective weighting functions and predictability of individ uals' future decisions were considered. Sixty-four subjects had to choose b etween the same 150 gamble pairs in three separate sessions, with an interv al of one week between sessions. Descriptive analyses showed considerable t emporal inconsistency in the individuals' decision behavior. It was, theref ore, not surprising that the analysis of temporal constancy of individual w eighting functions yielded frequent rejections of the constancy assumption. An additional analysis was conducted, predicting decision behavior in late r sessions using individual weighting functions estimated from earlier sess ions. This analysis takes the inconsistency into account explicitly and sug gests that the models' weighting functions, indeed, seemed to capture persi sting properties of the decision makers. While the assumption of subjective weighting of outcomes (as in expected utility theory) proved very importan t for predicting future decisions, the additional assumption of subjective weighting of probabilities (as in rank-dependent utility theory or cumulati ve prospect theory) improved predictability only to a minor degree. (C) 199 9 Elsevier Science B.V. All rights reserved.