Cycling with Rules of Thumb: An Experimental Test for a New Form of Non-transitive Behaviour. Chris Starmer, University of East Anglia
This paper tests a novel implication of the original version of prospect theory (Kahneman and Tversky 1979): that choices may systematically violate transitivity. Some have interpreted this implication as a weakness viewing it as an anomaly generated by the editing phase of prospect theory which can, or so it has been argued, be rendered redundant by an appropriate respecification of the preference function. But to the extent that we are concerned with descriptive theory, a relevant question is whether the predicted intransitivity occurs in actual choices. A simple experimental test is conducted and this test reveals strong evidence of the predicted intransitivity. The concluding section argues that this new anomaly presents a fresh theoretical challenge to those who seek to explain actual choice behaviour within the conventional economic paradigm of utility maximisation.