Eliciting Gul’s theory of disappointment aversion by the tradeoff method

Gul’s theory of disappointment aversion (DA) has several attractive features, being intuitive, analytically tractable, and parsimonious. In spite of this, the DA model has received little attention in practical applications, which may be partly due to the absence of a procedure to elicit the model. We show how the tradeoff method, developed by Wakker and Deneffe can be used to elicit DA. Our elicitation method is parameter-free: it requires no assumption about utility and/or disappointment aversion. Quantitative tests of DA in three outcome domains, monetary gains, monetary losses, and life-years, suggest that the DA model is too parsimonious. Of the other models of disappointment aversion that have been proposed in the literature, our data are most consistent with the model of Loomes and Sugden. 2007 Elsevier B.V. All rights reserved. JEL classification: D81 PsycINFO classification: 2200; 2340