AN EXPERIMENTAL TEST OF EVENT COMMUTATIVITY IN DECISION-MAKING UNDER UNCERTAINTY

A fundamental rationality assumption of many models of choices under risk and uncertainty is that the sequencing of events should not matter to a decision maker so long as the consequences arise under the same conditions, ignoring the order of events. Subjective expected utility (SEU) implies this property without exception; however, SEU is known not to be descriptive. The boundary between SEU and potentially more descriptive theories, such as the rank-dependent ones, has been shown to lie at a very simple version of this property called event commutativity. Two previous tests of it have yielded mixed results (Brothers, 1990; Ronen, 1973), but with some evidence from Brothers that it may be sustained if choice-based certainty equivalents are used. The present study tested event commutativity using a version of the sequential choice procedure Brothers employed in his third experiment. Twenty-four gambles representing a scenario of suing versus settling a car-accident dispute were presented to students, and certainty equivalents (settlement amounts) were elicited using a computer-controlled choice procedure. Twenty-two of 25 subjects supported the property of event commutativity; the others violated it in ways similar to those discovered in the earlier studies.