IS CHOICE THE CORRECT PRIMITIVE - ON USING CERTAINTY EQUIVALENTS AND REFERENCE LEVELS TO PREDICT CHOICES AMONG GAMBLES

Choice is viewed as a derived, not a primitive, concept. Individual gambles are assigned subjective certainty equivalents (CE1); the choice set X has an associated reference level [RL(X)] based on the CE1s of its members; the outcomes of each gamble are recoded as deviations from the RL(X); and new CE2s are constructed. The gamble having the largest CE2 is chosen. The CEs are described by the rank- and sign-dependent theory of Luce (1992b). The concept of RL is studied axiomatically. The model predicts many behavioral anomalies and is tested with data sets of Mellers, Chang, Birnbaum, and Ordonez (1992).