Composition rules in original and cumulative prospect theory

Abstract Original and cumulative prospect theory differ in the composition rule used to combine probability weighting function value function. We test predictive power of these rules by performing a novel out-of-sample prediction test. apply estimates theory’s obtained from two-outcome cash equivalents, domain where original coincide, three-outcome two theories differ. Although both forms predict equivalents very well, at aggregate level, we find small but systematic under-prediction for over-prediction theory. also observe substantial heterogeneity across subjects types gambles, some which is accounted differences curvature elevation individuals. related whether worst outcome zero or non-zero.