Comonotonic Independence: The Critical Test between Classical and Rank-Dependent Utility Theories

Wakker, Peter; Erev, Ido; Webber, Elke U.
December 1994
Journal of Risk & Uncertainty;Dec1994, Vol. 9 Issue 4, p195
Academic Journal
This article ecomares classical exected utility (EU with the more general rank-edendent utility (RDU) models. The difference between the independence condition for preferences of EU and its comonotonic generalization in RDU provides the exact demarcation between EU and rank-dependent models. Other axiomatic differences are not essential. An experimental design is described that tests this difference between independence and comonotonc independence I its most basic from and is robust against violations of other assumption that may confound the results in particular the reduction principle and transitivity, It is well known that in the classical counterexamples to EU. Comonotonic independence perform better than full-force independence for our more general choice pairs, however we find that cononotonic independence does not perform better. This is contrary to our prior expectation and suggests that rank-dependent models in full generality, do not provide a descriptive improvement over EU For rank-dependence models to have a future sub models and choice situation need to be identified for which rank-dependence does contribute descriptively.


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