This paper proposes a new decision theory of how individuals make random errors when they compute the expected utility of risky lotteries. When distorted by errors, the expected utility of a lottery never exceeds (falls below) the utility of the highest (lowest) outcome. This assumption implies...

A new laboratory experiment is designed to identify the best theories for describing decisions under risk. The experimental design has two noteworthy features: a representative sample of binary choice problems (for fair comparison across theories) and a lottery set with a small number of...

<Para ID="Par1">We propose a broad framework for individual choice under risk which can accommodate many stochastic formulations of various deterministic theories. Using this framework to guide an experimental design, we show that most individuals’ departures from the independence axiom cannot be explained by...</para>