Judgment Under Risk And Uncertainty: Application And Examination On The Equate-to-differentiate Approach

Background: Classical assumption on decision making assumed that the behavior of human being should be in accordance with rational definition in economics, which meant that people's preference should comply to procedure invariance presumption in the N-M utility theory. However, Lichtenstein and Slovic (1971, 1973)'s experiments found that people's preference under different response modes (choice vs. judgment) often fails to be consistent, the phenomenon of which is called"the preference reversal". In addition, studies on how people reason with statistical data suggested that human judgment often fails to rational probabilistic (Bayesian) inference. Tversky and Kahneman (1983) used the Linda problem and several other scenarios to study people's probabilistic (Bayesian) inference under uncertainty. Their results and empirical research has shown that in some situations when subjects are asked to assign the likelihood of several alternatives, including single and joint events, they tend to rate a probability to a conjunction of two events that is larger than the probability they assign to one of the constituent events. This empirical phenomenon is traditionally called the"conjunction fallacy". Tversky and Kahneman (1983)'s account of the fallacious behavior on conjunctive probability judgment in terms of their so called the representativeness and availability heuristic. But these heuristics have been criticized heavily as being far too vague to account for explanations. Whether reasoners'errors are committed depends on their interpretation of the expressions"and". In this article's first experiment, we examined Li (2006b)'s"equate-to-differentiate"interpretation on the causes of the preference reversal phenomenon. In the second experiment, the conjunction fallacy in the Linda problem was shown to be explained by Li (1994a, 2004)'s equate-to-differentiate decision model.Method: One new pair of two-outcome bets which the worst possible outcomes are relatively much more greater than Li (2006b)'s stimulus were used in the experiment 1 to examined whether the"equate-to-differentiate"approach can account for the causes of the preference reversal for the new bets. A within-subjects design was used and forty-eight subjects from Tianjin University partipated in the experiment. In experiment 2, a new Linda problem was designed to study whether the"equate-to-differentiate"decision rule can account for inference on disjunctive probability under uncertainty. Forty-one subjects from Tianjin University were asked to assign probabilities to disjunctions and their component events in new Linda problem questionnaire. The discrepancies on the probabilities of the best and the worst possible outcome dimensions of the conjunctions and component events were compared to examine whether the data are account for the equate-to-differentiate approach.Results: In experiment 1, 19 percent subjects'preference was reversed in the experimental group 2 compared with 30 percent in the objective group (N=48). In experiment 2, 83 percent subjects'data accorded with the equate-to-differentiate decision strategy (N=41).Conclusion: The results in our present study revealed that Li (1994a, 2004)'s the"equate-to-differentiate"decision rule can interpret the cause of preference reversal phenomenon and the conjunction fallacy and forecast two-outcomes probability judgment under uncertainty.