Rank and Sign Dependent Linear Utility Theory: Theoretical Extensions, Empirical Tests, and Applied Relevance

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The proposal outlines a valuable extension of research on expected utility theory. Forty years of experience has led to two conclusions. One, stressed by empirical researchers, is that the theory does not adequately describe behavior in many experimental and real-world situations. The other, stressed by decision analysts, is that the axioms of the theory are normatively appealing and difficult to dismiss. The gap between the descriptive inadequacy and normative appeal has widened in the past ten years. As a result, researchers have challenged not only the descriptive validity, but the normative basis of expected utility theory. The proposed research begins by identifying a common ground for descriptive and normative research in a newly developed rank and sign dependent (RSD) linear utility theory. The investigators propose (1) to extend the range of concepts included in RSD, (2) to test key assumptions of RSD, (3) to develop connections between RSD and traditional utility theory, and (4) to explore the normative-descriptive distinction in the context of RSD. Thus, the research combines theoretical development, experimental research, and applied experience in an effort to bridge the normative- descriptive gap in the theory of decision making under uncertainty.