Violations of Cpt in Mixed Gambles

This study conducts a classroom experiment and an online experiment to examine individual decision-making under risk. Like Levy and Levy (2002), the experiment uses pairs of mixed gambles with moderate probabilities to avoid the framing effect and certainty affect that may affect non-mixed gambles with extreme probabilities. Also, we use Stochastic Dominance criteria to avoid parametric specification of decision-maker preferences. Explicitly accounting for the Wakker (2003) comment, we find several serious violations of Cumulative Prospect Theory (CPT). In fact, in a head-to-head competition between Second-order Stochastic Dominance (SSD) and CPT, most individuals choose the SSD alternative