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Violations of Dominance in Pricing Judgments

Author

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  • Mellers, Barbara
  • Weiss, Robin
  • Birnbaum, Michael

Abstract

The dominance principle states that the judged price of gamble A should be equal to or greater than the judged price of gamble B whenever A's outcomes are equal to or better than the corresponding outcomes of B, holding everything else constant. Subjects often violate the dominance principle by assigning a higher price to a gamble with some probability of winning a positive amount, Y, otherwise zero, than to a superior gamble with the same chances of winning Y, otherwise winning X. Violations also occur with losses. Results are consistent with a configural-weight theory in which the decision weight for coach outcome depends on the rank of the outcome with respect to the other outcomes in the lottery and the value of the outcome (zero vs. nonzero). Copyright 1992 by Kluwer Academic Publishers

Suggested Citation

  • Mellers, Barbara & Weiss, Robin & Birnbaum, Michael, 1992. "Violations of Dominance in Pricing Judgments," Journal of Risk and Uncertainty, Springer, vol. 5(1), pages 73-90, February.
    • Handle: RePEc:kap:jrisku:v:5:y:1992:i:1:p:73-90
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    Citations

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    Cited by:

    1. Y. Alarie & G. Dionne, 2001. "Optimal Cognitive Processes for Lotteries," THEMA Working Papers 2001-07, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    2. repec:cup:judgdm:v:4:y:2009:i:6:p:509-517 is not listed on IDEAS
    3. Enrico Diecidue & Moshe Levy & Jeroen Ven, 2015. "No aspiration to win? An experimental test of the aspiration level model," Journal of Risk and Uncertainty, Springer, vol. 51(3), pages 245-266, December.
    4. Mareile Drechsler & Konstantinos Katsikopoulos & Gerd Gigerenzer, 2014. "Axiomatizing bounded rationality: the priority heuristic," Theory and Decision, Springer, vol. 77(2), pages 183-196, August.
    5. Liping Liu, 2004. "A Note on Luce-Fishburn Axiomatization of Rank-Dependent Utility," Journal of Risk and Uncertainty, Springer, vol. 28(1), pages 55-71, January.
    6. Dertwinkel-Kalt, Markus & Köster, Mats, 2015. "Violations of first-order stochastic dominance as salience effects," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 59(C), pages 42-46.
    7. Weber, Martin & Keppe, Hans-Jurgen & Meyer-Delius, Gabriela, 2000. "The impact of endowment framing on market prices -- an experimental analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 41(2), pages 159-176, February.
    8. Han Bleichrodt & Jose Luis Pinto-Prades, 2006. "A New Type of Preference Reversal," Working Papers 06.18, Universidad Pablo de Olavide, Department of Economics.
    9. Dustin P. Calvillo & Alan Penaloza, 2009. "Are complex decisions better left to the unconscious? Further failed replications of the deliberation-without-attention effect," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 4(6), pages 509-517, October.
    10. Alarie, Yves, 2000. "L’importance de la procédure dans les choix de loteries," L'Actualité Economique, Société Canadienne de Science Economique, vol. 76(3), pages 321-340, septembre.
    11. Blount, Sally & Bazerman, Max H., 1996. "The inconsistent evaluation of absolute versus comparative payoffs in labor supply and bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 30(2), pages 227-240, August.
    12. Han Bleichrodt & Jose Luis Pinto Prades, 2009. "New evidence of preference reversals in health utility measurement," Health Economics, John Wiley & Sons, Ltd., vol. 18(6), pages 713-726, June.

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