Are You an Exception to Your Favorite Decision Theory? Behavioral Decision Research Is a Linda Problem!

Stylized characteristics, such as loss aversion, risk aversion for gains, risk seeking for losses, overweighting of small probabilities, and diminishing sensitivity permeate both popular science and scholarly treatises about how ‘people’ make decisions. This note highlights that behavioral decision research is, in effect, a large-scale Linda problem: The likelihood that a given individual satisfies the conjunction of many such stylized characteristics may be vanishingly small. We concentrate on a case study, namely the pervasive oversimplifications surrounding Amos Tversky and Daniel Kahneman’s Prospect Theory and Cumulative Prospect Theory (CPT). Focussing entirely on evidence from within the original papers, we show that each and every person may be an exception to (Cumulative) Prospect Theory as advertised. Similar problems afflict many other behavioral research paradigms. We call on scholars to relinquish overly simplified characterizations of choice behavior. Telling practitioners and laypersons in stylized fashion how ‘people’ think promotes conjunction fallacies on a huge scale. Rather than conceptualize individual differences as a mere add-on to a schematic decision theory of central tendencies, decision scholars should recognize heterogeneity as a major theoretical primitive when proposing new theories