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Violations of dominance in pricing judgments

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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 each 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).

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Author information

Authors and Affiliations

  1. Department of Psychology, University of California at Berkeley, 94720, Berkeley, CA

    Barbara Mellers

  2. University of California at Berkeley, 94720, Berkeley, CA

    Robin Weiss

  3. California State University, Fullerton, CA

    Michael Birnbaum

Authors
  1. Barbara Mellers
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  2. Robin Weiss
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  3. Michael Birnbaum
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Additional information

The authors thank Shi-jie Chang, Duncan Luce, and Lisa Ordóñez for comments on an earlier draft. This research was supported by a National Science Foundation grant to the first author (BNS-8451368). Requests for reprints should be sent to Barbara Mellers, Dept. of Psychology, University of California, Berkeley, CA 94720.

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Mellers, B., Weiss, R. & Birnbaum, M. Violations of dominance in pricing judgments. J Risk Uncertainty 5, 73–90 (1992). https://doi.org/10.1007/BF00208788

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