Cycling with rules of thumb: An experimental test for a new form of non-transitive behaviour

This paper tests a novel implication of the original version of prospect th eory (Kahneman and Tversky, 1979): that choices may systematically violate transitivity. Some have interpreted this implication as a weakness, viewing it as an anomaly generated by the `editing phase' of prospect theory which can be rendered redundant by an appropriate re-specification of the prefer ence function. Although there is some existing evidence that transitivity f ails descriptively, the particular form of non-transitivity implied by pros pect theory is quite distinctive and hence presents an ideal opportunity to expose that theory to test. An experiment is reported which reveals strong evidence of the predicted intransitivity. It is argued that the existence of this new form of non-transitive behaviour presents a fresh theoretical c hallenge to those seeking descriptively adequate theories of choice behavio ur, and a particular challenge to those who seek explanations within the co nventional economic paradigm of utility maximisation.