J o u r n a l o f Ri s k a n d Un c e r t a i n t y , 11: 263- 274 (1995)

9 1995 Kl u we r Ac a d e mi c P u b l i s h e r s
Regret Aversion or Event-Splitting Effects?
More Evi dence under Risk and Uncertainty
S T E V E N J . H U M P H R E Y
Department of Economics, University of Nottingham, Nottingham NG7 2RD, United Kingdom 951 5472
Abs t r ac t
R e c e n t e x p e r i me n t a l e v i d e n c e h a s c o n c l u d e d t h a t e x p e r i me n t a l l y o b s e r v e d j u x t a p o s i t i o n ef f ect s, as p r e d i c t e d
by r e g r e t t h e o r y 1, a r e l ar gel y a t t r i b u t a b l e t o " e v e n t - s p l i t t i n g e f f e c t s " ( ES Es ) wh e r e b y t h e s ubj e c t i ve de c i s i on
we i g h t a t t a c h e d t o a n o u t c o me d e p e n d s o n t h e n u m b e r of, as we l l as o n t h e c o mb i n e d p r o b a b i l i t y of, t h e
di s j oi nt e v e n t s i n wh i c h t h a t o u t c o me occur s. A n e x p e r i me n t i s r e p o r t e d t h a t d i s c r i mi n a t e s b e t we e n j uxt a pos i -
t i o n ef f ect s a n d E S E s u n d e r c o n d i t i o n s o f b o t h c o mp l e t e a n d i n c o mp l e t e i n f o r ma t i o n . T h e r e s u l t s c o n f i r m t h a t
j u x t a p o s i t i o n ef f ect s a r e i n d e e d l ar gel y d u e t o E S E s a n d a r e r o b u s t o v e r d i f f e r e n t i n f o r ma t i o n a l c ondi t i ons .
Key wor ds : r e g r e t t he or y, j u x t a p o s i t i o n effect s, e v e n t - s p l i t t i n g effect s, a n c h o r i n g effect s.
St ar mer (1992) and St armer and Sugden (1993) r epor t experi ment s which sought t o
discriminate be t we e n two compet i ng explanations for certain experimentally obser ved
pat t er ns of decision-making behavior. These experiments addr essed t he issue of whet her
obser ved choices previously i nt er pr et ed as j uxt aposi t i on effects, support i ve of regret
theory, shoul d b e r ei nt er pr et ed as ESEs. 2 The emerging conclusions were, essentially,
t hat previous evidence consi der ed support i ve o f j uxt aposi t i on effects was i ndeed largely
due t o ESEs. The conclusions furt her suggest t hat ESEs might emer ge as a resul t o f t he
way in which subjects process information regarding probabilities. Thes e experi ment s
wer e solely concer ned wi t h situations of risk, b u t if ESEs are at t ri but abl e t o t he way in
which subjects ment al l y process information regarding t he probability distribution un-
derlying choices, it woul d b e j udi ci ous t o investigate t he impact o f t he compl et eness of
t hat information on t hei r i nci dence- - i n ot her words, t o examine whet her ESEs emer ge
under conditions o f uncert ai nt y as well as risk. This r epr esent s a move t owards real-
worl d decision-making environments b u t is primarily important, as will b e discussed in
due course, in t hat existing tests of regret t heor y have empl oyed designs involving com-
pl et e probability information despi t e t her e bei ng reasons why one might expect t he
influence of regret t o i ncrease in pr omi nence under uncertainty.
This article r epor t s an experi ment desi gned t o det ect t he combi ned influence of r egr et
and ESEs under conditions of bot h compl et e and i ncompl et e i nformat i on regarding t he
underlying probabi l i t y distribution. It t hen discriminates be t we e n t he t wo effects t o dis-
cover which, i f any, exerts t he maj or influence in isolation.
264 STEVEN J. HUMPHREY
1. J u x t a p o s i t i o n e f f e c t s
Th e ver si on o f r egr et t h e o r y p r e s e n t e d by Lo o me s a n d Sugden (1982) is us e d by St a r me r
(1992) a n d St a r me r a n d Sugde n (1993) t o anal yze r esponses g e n e r a t e d in exper i ment s
c onc e r ne d wi t h pai rwi se choi ces over mo n e t a r y consequences. Th e e xpe r i me nt r e p o r t e d
he r e is c onc e r ne d wi t h a si mi l ar class o f deci si on pr obl ems, a n d t hus di scussi on o f j uxt a-
posi t i on ef f ect s will be r es t r i ct ed t o t h e pr edi ct i ons o f r egr et t h e o r y f or t h e deci si on
pr obl ems i l l us t r at ed i n t abl es l a a n d l c . 3 Si nce p = r, pr os pect - bas ed t heor i es woul d
i mpl y t h a t t h e p r e f e r e n c e r anki ngs o f R in r el at i on t o S a n d R" i n r e l a t i on t o S" will be
i dent i cal . Re g r e t t heor y, however, also allows S > R a n d R" > S." An appl i cat i on o f
r egr et t h e o r y t o pr obl ems l a a n d l c yi el ds t h e c ondi t i on
p ~ ( a , b) - p ~ ( a , O) - rC~(b, O) < O,
or s i n c e p = r
p[ q J ( a, b) - C~(a, O) - ag(b, 0)] < 0,
(1)
(2)
whe r e t h e f unct i on ~( . ) s houl d be i nt e r pr e t e d as t h e ant i ci pat ed n e t advant age o f choos-
i ng t h e o u t c o me r e p r e s e n t e d by t h e first a r g u me n t over t h e o u t c o me r e p r e s e n t e d by t h e
Table l a. Overlap/Split problem.
probability
P q
R
S
Table lb. Disjoint/Split problem.
Table lc. Disjoint/Combined problem.
probabifity
p q r
R' a 0 0
S' 0 b b
e re
S"
probability
p c
p + q + r = 1;p = r ; c = p + q = q + r ; a > b > 0 .
REGRET AVERSION OR EVENT- SPLITI' ING EFFECYS 265
second argument if t he st at e of t he wor l d occurs in which bot h out comes wer e available.
It is f r om condition (2) which emer ges t he above conjunction of pr ef er ences consi st ent
wi t h a j uxt aposi t i on effect.
2. Event-splitting effects
ESEs can b e explained in t he cont ext of a simple form of subjectively wei ght ed utility
t heor y ( WUT) . 4 As St armer and Sugden (1993) illustrate, WUT is essentially a
"stripped-down" versi on o f pr ospect t heor y which maintains t he f undament al pr oper t i es
of t he probabi l i t y weighting function, such as subaddi t Mt y, b u t repl aces t he editing stage
with t he assumpt i on of post-combination. 5 If WUT is appl i ed t o t he decision pr obl ems
pr es ent ed in t abl es l a and l c, t hen t he conjunction of preferences, S > R a n d R " > S" ,
consi st ent wi t h a juxtapositiofl effect (as out l i ned above) and an ESE is said t o occur if
"rr(p)v(b) + ~r(q)v(b) > w(c)v(b), (3)
or given t hat c = p + q
w(p) + -rr(q) > "rr(p + q), (4)
which will b e t he case if t he weighting funct i on ~T(.) is subadditive in t he rel evant region. 6
Consequently, t he above exposition illustrates t hat for a certain class of decision pr ob-
lems t he same conj unct i on of pr ef er ences can b e explained by regret t heor y or WUT.
However , t he influence of ESEs can occur in isolation in accordance with t he simple
f or m of WUT empl oyed by St ar mer and Sugden (1993). The influence of ESEs can b e
t est ed while controlling f or regret effects by comparing responses t o disjoint/split and
disjoint/combined pr obl ems as respectively pr es ent ed in t abl es l b and l c. Similarly, t he
isolated influence of regret can b e t es t ed by controlling f or ESEs and comparing re-
sponses t o overlap/split and overl ap/combi ned pr obl ems such as t hose respectively pre-
sent ed in t abl es l a and l b.
3. Different i nformati onal conditions: ri sk and uncertainty
3.1. Information and juxtaposition effects
Har l ess (1992) r epor t s an experi ment which provides evidence t hat regret effects are
specific t o t he act/event matrix display. H e claims that, when disjoint events ar e well-
defi ned (i.e., s epar at ed by vertical lines in experimental displays), det ect i ng t he j uxt apo-
sition of consequences requi res little ment al effort, and this hei ght ens t he pot ent i al for
observing j uxt aposi t i on effects. This hypothesis is significantly di fferent from t hat of
St armer and Sugden (1993). St armer and Sugden suggest t hat t hei r results (given t he
displays us e d) a r e gener al l y cons i s t ent wi t h ESEs r a t he r t ha n j uxt aposi t i on effects.
266 STEVEN J. HUMPHREY
Harl ess, on t he ot he r hand, apparent l y suggests t hat juxtaposition effects ar e a genui ne
phenomenon, but ar e only observed in experi ment s which empl oy f r ames t hat empha-
size cert ai n aspects of decision problems. If t he St ar mer and Sugden conclusion is cor-
rect, t hen perhaps one woul d not expect t he discovery o f juxtaposition effects to be any
mor e likely unde r uncer t ai nt y t han unde r simple risk. If, however, t he Harless hypothesis
is correct, t hen it might be ar gued t hat juxtaposition effects ar e mor e likely to emer ge
unde r conditions of uncertainty. If t he estimation o f uncer t ai n probabilities is consi dered
effort-intensive, t hen ment al effort might be di vert ed towards ot he r less demandi ng
aspects of t he decision problem. For example, det ect i ng t he juxtaposition of out comes in
t he act/event matrix. It does s eem plausible t hat increasing uncer t ai nt y will make it mor e
difficult for subjects to weight out comes within prospects, t her eby increasing t he impor-
t ance o f "up and down" comparisons between prospects and within states o f t he world.
This t ype of behavior would i ncrease t he pot ent i al for observing r egr et effects.
3.2. Information and ESEs
The WUT explanation o f ESEs is t hat t hey emer ge f r om t he way in which decision
weights ar e assigned to st at ed experi ment al probabilities. Un d e r conditions of compl et e
probability information, this woul d imply t hat subjects base t hei r decisions on bi ased
percept i ons of t he stated likelihood of events. However, if t he propositions of psycholo-
gists such as Ei nhor n and Hogar t h (1986) ar e correct regardi ng t he ma nne r in which
subjects r eact to ambiguity, t her e appears to be good r eason t o expect t he i nci dence of
ESEs to differ according to t he compl et eness o f available probability i nformat i on in a
decision problem. Recour se to t he specifics of ambiguity-based t heori es is not strictly
necessary t o explain this cont ent i on, because although prospect t heor y does not deal
explicitly with ambiguity, Kahneman and Tversky (1979, p. 288) suggest it can be ex-
t e nde d to situations which involve no st at ed probabilities of outcomes. In such instances,
decision weights woul d be assigned to particular events and de pe nd upon t he percei ved
likelihoods of t hose events (note, however, t hat Tversky and Kahneman' s (1992) Ad-
vances in Prospect Theory allows uncert ai nt y by means of nonadditive subjective proba-
bilities, and t hus does deal explicitly wi t h ambiguity). In particular, Kahneman and
Tversky (1979), along similar lines to Ellsberg (1961), conj ect ure t hat vagueness will
i ncrease t he distortion of t he weighting funct i on (relative t o EUT) without changing its
essential properties. This woul d offer an explanation within t he simple WUT f r amewor k
f or any observed i ncrease in t he i nci dence of ESEs unde r conditions of i ncompl et e
i nformat i on regardi ng t he underlying probability distribution.
4. The Experiment
4.1. Design
The exper i ment t est ed for juxtaposition effects and ESEs, as discussed above, using f our
sets (each with di fferent consequences) y o f t he system t hr ee problems whose general
REGRET AVERSION OR EVENT-SPLITTING EFFECTS 267
form is given in t abl es l a, l b and l c. These tests wer e conduct ed under conditions of bot h
compl et e and i ncompl et e probability information.
Pr obl ems wer e pr es ent ed to subjects at comput er terminals; figure 1 illustrates t he
comput er i zed display as it a ppe a r e d t o subjects, except for mi nor details, s for compl et e
information problems. The t op and bot t om strips each r epr esent an option. The num-
ber s along t he t op of each strip r ef er t o numbers on a set of 100 consecutively numbe r e d
plastic discs (cont ai ned in bag) and r epr esent t he probability distribution of monet ar y
consequences f or each option. On e such disc woul d b e randoml y drawn by subjects t o
det er mi ne t hei r winnings upon playing out t hei r randoml y sel ect ed "r eal " quest i on at t he
e nd of t he experiment. The number s inside t he cells r epr esent amount s of money in U. K.
pounds, and t he number s along t he bot t om of each strip show t he probabi l i t y o f each
disjoint event as a percent age. Not i ce t hat t he display empl oyed col umn widths which are
not proport i onal t o probabilities. The r eason behi nd this was that, since each subj ect
woul d face pr obl ems wi t h bot h compl et e and i ncompl et e probabi l i t y information, and
under i ncompl et e information no graphical analogues of probability we r e provided, t he
same st andard was adopt ed f or t he compl et e information display t o facilitate a smoot h
transition bet ween t he t wo environments.
Un d e r i ncompl et e information, t he hypot heses wer e t es t ed by replacing numeri cal
probabilities wi t h colors, wher e t he colors r epr es ent ed col ored balls in glass urns in t he
exact pr opor t i ons given by t he objective probabilities. Thus, f or split problems, t he rele-
vant glass ur n cont ai ned 100p green, 100q brown, and 100r yellow balls, and t he rel evant
ur n f or combi ned pr obl ems cont ai ned 100p ( = 100r) cyan and 100c pi nk balls. Subjects
wer e onl y t ol d t hat t her e wer e a t ot al of 100 balls in each urn. As figure 2 shows, this
allowed t he i ncompl et e information questions t o b e r epr es ent ed by a display similar t o
t hat which r epr es ent ed t he compl et e information problems. At t he end of t he experi-
ment, t he combi nat i ons o f col or ed balls wer e t r ansf er r ed t o respect i ve bags t o facilitate
t he playing out of a "r eal " i ncompl et e information question.
E X A M P L E Q U E S T I O N 1.
1 3 0 3 1 7 0 7 1 lO0
3 0 % 4 0 % 3 0 %
1 3 0 3 1 7 0 7 1 i00
4 I 4 0
i
3 O% 4 O% 3 0 %
Make your choice by using t h e UP and DOWN ARROW KEYS and t hen pressing < ENT ER>
Figure 1. Example of the Complete Information Display
268 STEVEN J. HUMPHREY
EXAMPLE QUESTION 2.
G R E E N = Y E L L O W = C Y A N
{
B R O W N + A N Y A B O V E C O L O U R = P I N K J
J
G R E E N B R O W N Y E L L O W
1 2 0 0
G R E E N B R O W N Y E L L O W
4 4 0
Make your choi ce by using t he UP and DOWN ARROW KEYS and t hen pressing < E N T E R > .
Figure 2. Example of t he Incomplete Information Display
As fi gure 2 i l l ust rat es, subjects we r e pr ovi ded wi t h s ome pr obabi l i t y i nf or ma t i on f or
t h e i ncompl et e i nf or ma t i on ques t i ons in t h e f or m o f i nf or ma t i on r egar di ng colors. Th e
first pi ece o f i nf or mat i on, gr e e n = yel l ow = cyan ( wher e " = " s houl d be i nt e r pr e t e d as
me a ni ng a n e qua l n u mb e r o f balls), al l owed subjects t o de duc e t h a t t h e onl y di f f er ence
be t we e n overl ap/spl i t a n d di sj oi nt /spl i t pr obl ems is t he j uxt apos i t i on o f o u t c o me b. Sim-
ilarly, t h e s econd pi ece o f i nf or mat i on, br own + gr e e n or yel l ow or cyan = pink, al l owed
subjects t o de duc e t h a t o n e di sj oi nt e ve nt in di sj oi nt /combi ned pr obl ems is a combi na-
t i on o f t wo di sj oi nt event s i n overl ap/spl i t a n d di sj oi nt /spl i t pr obl ems. Thus, i f t hi s i nfor-
ma t i on was us ed, pr e f e r e nc e s cons i s t ent wi t h j uxt apos i t i on effects, ESEs, o r bot h, c oul d
n o t b e a t t r i b u t a b l e t o i n c o r r e c t e s t i ma t i o n o f t h e p r o p o r t i o n s o f c o l o r e d bal l s i n t h e
gl ass ur ns . 9
Gi ven t h a t t he t est s we r e car r i ed o u t by compar i ng r es pons es t o pai rs o f quest i ons, f or
any given pai rwi se compar i son, e a c h subj ect can be cat egor i zed as ei t her RR, RS, SR, or
SS ( apos t r ophes shown i n t abl es l a , l b , a n d l c ar e o mi t t e d h e r e f or simplicity, b u t t hes e
cat egor i es s houl d be i nt e r pr e t e d as, f or exampl e, in t h e case of RS, opt i on R bei ng chos en
i n t h e first pr obl e m i n t h e compar i s on a n d opt i on S i n t he second) . Th e t es t is ba s e d on
t h e nul l hypot hesi s t h a t t h e r e will be no syst emat i c j uxt apos i t i on effect s o r ESEs, a n d a ny
devi at i on f r om expect ed ut i l i t y t he or y will be r a n d o m er r or . Th e r es pons es consi st ent
wi t h expect ed ut i l i t y t h e o r y ar e RR a n d SS, a n d t he r e f or e , u n d e r t h e nul l hypot hesi s, RS
a n d SR r es pons es c a n onl y occur as t he r es ul t o f errors. At pr esent , t h e r e does n o t exist a
gener al l y a c c e pt e d t h e o r y o f er r or s, a n d so t h e convent i onal a s s umpt i on i n exper i ment s
o f t hi s ki nd t h a t RS a n d SR r es pons es ar e equal l y likely will be fol l owed. Th e nul l
hypot hes i s will be t e s t e d agai nst t h e al t er nat i ve hypot hesi s t h a t SR r es pons es ar e mo r e
likely t o occur t h a n RS r esponses. If t h e nul l hypot hesi s is r ej ect ed, t he n, d e p e n d i n g on
t he ques t i on pai r bei ng cons i der ed, i t will be concl uded t h a t e i t he r a j uxt aposi t i on effect ,
an ESE, o r a c ombi na t i on o f b o t h has b e e n de t e c t e d.
REGRET AVERSION OR EVENT-SPLITtING EFFECTS 269
4.2. Organization
T h e e x p e r i me n t wa s c o n d u c t e d d u r i n g t h e s u m m e r o f 1993 wi t h a t o t a l o f 150 s ubj ect s .
P a r t i c i p a n t s we r e ma i n l y Op e n Uni ver s i t y, p o s t g r a d u a t e , a n d u n d e r g r a d u a t e s t u d e n t s
r e c r u i t e d o n t h e c a mp u s o f t h e Un i v e r s i t y o f E a s t Angl i a.
I n all, s ubj e c t s f a c e d a t o t a l o f 40 p r o b l e ms , 1~ a n d i t wa s p r e d e t e r mi n e d i n a r a n d o m
m a n n e r wh e t h e r s ubj ect s i n a gi ven s es s i on wo u l d f a c e c o mp l e t e o r i n c o mp l e t e i n f o r ma -
t i o n p r o b l e ms fi rst . A p o s s i b l e p r o b l e m ar i s i ng f r o m t hi s c o n t r o l f o r o r d e r ef f ect s, how-
ever , is t h a t , i f s ubj ect s a n s we r e d t h e c o mp l e t e i n f o r ma t i o n p r o b l e ms fi rst , t h e y mi g h t b e
l ed t o i n f e r t h a t t h e p r o b a b i l i t y di s t r i but i on u n d e r l y i n g t h e i n c o mp l e t e i n f o r ma t i o n qu e s -
t i ons wa s t h e s a me as t h a t gi ven i n t h e c o mp l e t e i n f o r ma t i o n p r o b l e ms . T o mi n i mi ze t h e
l i ke l i hood o f t hi s, t h e s i mi l ar i t y b e t we e n t h e t wo s et s o f p r o b l e ms wa s di s gui s ed b y us i ng
t wo p a r a m e t e r s et s f o r mo n e t a r y o u t c o me s . So, f o r e x a mp l e , s ubj e c t s i n a n y p a r t i c u l a r
s es s i on wo u l d f a c e p a r a m e t e r s e t 1 f o r c o mp l e t e i n f o r ma t i o n p r o b l e ms a n d p a r a m e t e r
s e t 2 f o r i n c o mp l e t e i n f o r ma t i o n que s t i ons , o r vi ce ve r s a . 11 T o c o n t r o l f o r p o s s i b l e o r d e r
e f f e c t s wi t hi n e a c h s e t o f que s t i ons , t h e o r d e r o f que s t i ons wa s r a n d o mi ze d f o r e a c h
subj ect ; a n d , f u r t h e r mo r e , i t wa s d e t e r mi n e d i n a r a n d o m m a n n e r wh i c h o p t i o n a p -
p e a r e d i n t h e u p p e r o r l o we r pos i t i on, a n d wh e t h e r t h e ma t r i c e s a p p e a r e d as i n t a b l e s 1
a n d 2 o r as h o r i zo n t a l mi r r o r i ma g e s o f t h o s e di spl ays. I n a d d i t i o n t o t h e s e c ont r ol s , t h e
c o l o r s wh i c h a p p e a r e d i n t h e l e f t - h a n d a n d r i g h t - h a n d e v e n t s i n i n c o mp l e t e i n f o r ma -
t i o n qu e s t i o n s w e r e r a n d o m i ze d t o c o n t r o l f o r r e s p o n s e s b e i n g b i a s e d b y p r e f e r e n c e s
o v e r c o l o r s .
T h e e x p e r i me n t e mp l o y e d t h e r a n d o m l o t t e r y i nc e nt i ve s ys t em, wi t h t h e " r e a l " qu e s -
t i on t o b e d e t e r mi n e d b y d r a wi n g a n u mb e r e d di sc f r o m a b a g c o n t a i n i n g 40 c o n s e c u -
t i vel y n u mb e r e d di scs a t t h e e n d o f t h e e x p e r i me n t . Ac t u a l wi nni ngs we r e d e t e r mi n e d b y
Table 2. List of parameters
Parameter Set 1.
Questions Parameter
a b p q r c
1, 2, 3, 21, 22, 23 14 5 0.3 0.4 0.3 0.7
4, 5, 6, 24, 25, 26 17 5 0.3 0.4 0.3 0.7
7, 8, 9, 27, 28, 29 24 8 0.3 0.4 0.3 0.7
10, 11, 12, 30, 31, 32 27 8 0.3 0.4 0.3 0.7
Parameter Set 2.
Questions Parameter
a b p q r c
1, 2, 3, 21, 22, 23 11 4 0.3 0.4 0.3 0.7
4, 5, 6, 24, 25, 26 20 6 0.3 0.4 0.3 0.7
7, 8, 9, 27, 28, 29 25 9 0.3 0.4 0.3 0.7
10, 11, 12, 30, 31, 32 28 9 0.3 0.4 0.3 0.7
270 S T E V E N J. H U M P H R E Y
drawing a number ed disc from anot her bag if t he real quest i on involved compl et e infor-
mation, or by drawing a col or ed ball from a bag containing t he balls appr opr i at e for t hat
quest i on i f t he real quest i on involved i ncompl et e information. The expect ed payof f was a
little under s f or each subject, and payment was made in cash i mmedi at el y af t er t he
experiment. The r andom l ot t ery pr ocedur e has b e e n criticized by Hol t (1986) on t he
basis t hat it may not elicit subjects' t r ue pr ef er ences unless t he i ndependence axiom of
expect ed utility t heor y holds. However, evidence provi ded by St armer and Sugden
(1992) suggests t hat while t heoret i cal l y correct, Hol t ' s hypothesis is wi t hout empirical
substantiation. Fur t her mor e, this experi ment was designed such t hat any systematic
j uxt aposi t i on effects or ESEs coul d not be explained by t he possi bl e bi ases which Hol t
suggests might b e at t ri but abl e t o t he random-l ot t ery pr oc e dur e (for a mor e det ai l ed
discussion of why this is t he case, see Loomes, Starmer, and Sugden, 1992).
5. Resul t s
The tests for combi ned j uxt aposi t i on effects and ESEs, j uxt aposi t i on effects in isolation,
and ESEs in isolation wer e within group t est s f or identical paramet ers, t he results of
which are pr es ent ed in t abl es 3a, 3b, and 3c respectively. The t abl es set out t he number
of obser ved conjunctions of pr ef er ences f or each quest i on pai r consi dered, each infor-
mational environment, and each par amet er set empl oyed. The p- va l ue shows, given t he
null hypothesis, t he probabi l i t y of observing at least as many SR (predi ct ed) responses as
wer e actually observed.
Tabl e 3a indicates t hat t he null hypothesis can b e confidently r ej ect ed for all b u t one
quest i on pai r (4, 6 in pa r a me t e r set 1), and t hat t her e exist significant j uxt aposi t i on
effects and/or ESEs under bot h compl et e and i ncompl et e information.
Tabl e 3b indicates that, when ESEs ar e controlled, t her e is little evidence of j uxt apo-
sition effects under ei t her compl et e or i ncompl et e information. Res pons es ar e split in
t he direction consi st ent wi t h a j uxt aposi t i on effect in two compl et e information quest i on
pairs (7, 8 in par amet er set 1, and 1, 2 in par amet er set 2) and in t hr ee of t he i ncompl et e
information pairs (21, 22 and 27, 28 in par amet er set 1 and 24, 25 in par amet er set 2) b u t
t he differentials ar e not large enough t o allow rej ect i on of t he null hypothesis. Fur t her -
more, despi t e a priori expectations t hat t he i ncompl et e information display might
heighten t he pot ent i al for observing j uxt aposi t i on effects, t her e is little evidence t o sug-
gest t hat this was t he case.
Tabl e 3c provides seemingly conclusive evi dence that, when j uxt aposi t i on effects ar e
controlled, t he influence of ESEs is highly significant in every quest i on pai r f or each
par amet er set empl oyed in t he experiment. Whe n t aken in conjunction with t he evidence
of t abl es 3a and 3b, this strongly suggests t hat choices consistent wi t h j uxt aposi t i on
effects are ei t her nonexistent or very weak. This not only replicates t he findings of
St ar mer and Sugden (1993), but , in addition, does so under t he hi t hert o unexami ned
conditions of i ncompl et e probability information.
REGRET AVERSION OR EVENT- SPLITI' ING EFFECTS 271
Table 3a. Combi ned juxtaposition/ESE questions
Compl et e information Incompl et e information
Number of subjects with r esponse Number of subjects with r esponse
Q. Pair R R " SS" RS " S R" p Q. Pair R R " SS" RS " S R" p
p a r a me t e r s e t l
1, 3 14 34 5 14 0. 03 1 8" 21,23 23 29 6 25 0. 0004 *
4, 6 26 24 6 11 0. 1 6 6 2 " 24, 26 35 17 4 27 0. 0000*
7, 9 14 28 3 22 0. 0001 " 27, 29 26 29 4 24 0. 0001 "
10,12 24 25 4 14 0. 01 5 4 " 30,32 37 14 5 27 0. 0001 "
p a r a me t e r s e t 2
1, 3 23 27 4 29 0. 0000* 21,23 23 21 6 17 0. 01 7 3 "
4, 6 32 20 8 23 0. 005 3 * 24, 26 24 19 5 19 0. 003 3 *
7, 9 17 31 5 30 0. 02 6 2 * 27, 29 12 22 6 27 0. 0002 *
10, 12 31 30 6 16 0. 02 6 2 * 30, 32 24 17 7 19 0. 01 4 5 "
Table 3b.. Pur e juxtaposition questions
Q. Pair RR' SS' RS' SR' p Q. Pair RR' SS' RS' SR' p
par amet er set 1
1, 2 13 43 6 5 0.7256 21, 22 21 45 8 9 0.5000
4, 5 21 33 10 3 0.9888 25, 25 26 37 13 7 0.9423
7, 8 14 25 3 5 0.3633 27, 28 25 47 5 6 0.5000
10, 11 16 33 12 6 0.9519 30, 31 28 34 14 7 0.9608
p a r a me t e r s e t 2
1, 2 19 43 8 13 0.1917 21, 22 20 31 9 7 0.7728
4, 5 24 33 16 10 0.9157 24, 25 20 26 9 12 0.3318
7, 8 13 53 9 8 0. 6855 27,28 11 43 8 5 0.8666
10,11 28 39 9 7 0. 7728 30,31 20 31 11 5 0.9616
Table 3c. Pur e ESE questions
Q. Pai r R ' R " S ' S " R ' S " S ' R " p Q. Pair R ' R " S ' S " R ' S " S ' R " p
par amet er set 1
2, 3 12 33 6 16 0. 02 6 2 * 22, 23 24 29 6 24 0. 0007 *
5, 6 21 26 3 17 0. 001 3 " 25, 26 31 19 2 31 0. 0000"
8, 9 15 27 4 21 0. 0005 * 28,29 26 28 5 24 0. 0003 *
11, 12 17 25 5 20 0. 002 0* 31,32 30 13 5 35 0. 0000*
p a r a me t e r s e t 2
2, 3 26 25 6 26 0. 0003 * 22,23 22 24 4 17 0. 003 6 *
5, 6 31 25 3 24 0. 0000* 25, 26 25 17 7 18 0. 02 1 6 "
8, 9 20 35 1 27 0 . 0 0 0 0 " 28,29 13 27 3 24 0. 0000"
11, 12 28 29 7 19 0 . 0 1 4 5 " 31,32 20 19 6 22 0. 001 9 "
The value o f p is calculated for a t est using t he binomial distribution of t he hypothesis t hat SR (apost rophes
omi t t ed) responses occur with a great er frequency t han RS responses. Ap- val ue less t han 0.05 is indicated with
an asterisk and denot es a significant result.
272 STEVEN J. HUMPHREY
6. ESEs Reexami ned
Ther e ar e some not abl e differences be t we e n t he results yi el ded by this experi ment and
t hose o f previ ous experi ment s concer ned with ESEs. St armer (1992a), for example,
concl uded t hat evi dence of ESEs in isolation was qui t e weak, and yet this finding is
clearly not subst ant i at ed by this experiment. One possible explanation f or this might b e
t hat previ ous experiments empl oyed displays in which events wer e r epr es ent ed as pro-
port i onal t o probability. The displays us ed in this experi ment gave less visual sense o f
probabi l i t y and so might b e expect ed t o i nduce ESEs t o a gr eat er extent. If t he WUT
explanation of ESEs contains substance, t hen t he form t aken by t he weighting funct i on
rr(.) coul d explain differences in significance. In particular, t he increase in significance
coul d b e explained i f t he weighting funct i on is only subadditive (or becomes mor e dis-
t or t ed) over a range o f probabilities, and this experi ment us ed exactly t hat range. The
ESEs which emer ged involved splitting a probabi l i t y of 0.7 into 0.4 and 0.3, but , since
St ar mer and Sugden (1993) r epor t ESEs over a wi de range of probabilities, this consid-
erat i on does not s eem t o be of maj or importance.
7. Conc l us i ons
First, t he results o f t he experi ment r epor t ed in this article suppor t t he findings of
St ar mer (1992a) and St ar mer and Sugden (1993) in t hat t her e is little evi dence t o suggest
t hat t he j uxt aposi t i on of consequences in t he act/event matrix systematically influences
decisions. Evi dence gener at ed under conditions of compl et e probability information
previously explained as j uxt aposi t i on effects does s eem t o b e generally at t ri but abl e t o
ESEs. Second, this also appear s t o b e t he case f or decisions made under uncertainty.
Fur t her mor e, given Harl ess's cont ent i ons regarding t he affect of pr obl em r epr esent at i on
on regret, t he i ncompl et e information component of this experi ment arguably gave jux-
t aposi t i on effects an "ext ra chance" t o emerge, and yet none did. Ther ef or e, it does s e e m
t hat in explaining decisions obser ved in experi ment s o f this kind, regret t heor y contains
significantly less power t han was previously thought. The evidence also adds weight t o
t he hypothesis t hat appar ent j uxt aposi t i on effects ar e actually ESEs and not genui ne
effects br ought t o t he fore by frames which emphasi ze within-state comparisons.
Finally, it is wor t h reiterating t hat t he ESEs di scovered in this experi ment ar e consis-
t ent wi t h simple WUT, assuming post -combi nat i on and subadditivity. Ther ef or e, wer e it
not f or t he editing stage ( and particularly t he act of combi nat i on), pr ospect t heor y woul d
pr edi ct ESEs. In this respect , it seems t hat "st r i pped- down" pr ospect t heor y is a reason-
ably good starting poi nt f or explaining ESEs, but t he t heor y needs t o b e devel oped t o
offer mor e preci se suggestions regarding situations in which subjects invoke (or do not
invoke) cert ai n editing operat i ons.
Acknowl edgment s
The r esear ch r epor t ed in this article was conduct ed as par t o f t he Eur ope a n Experi men-
tal Economi cs Net wor k and suppor t ed by t he E U t hrough t he Stimulation Pl an f or
R E GR E T AVE RS I ON OR EVENT- SPLITTING EFFECTS 2 7 3
Ec onomi c Sci ence. Th e a u t h o r is gr at ef ul t o Chr i s St ar mer , Ro b e r t Sugden, a n d a n
a nonymous r e f e r e e f or val uabl e comment s .
No ~ s
1. Reader s less fami l i ar wi t h r egr et t heor y shoul d consul t Bell (1982), Fi s hbur n (1982, 1987), a n d Loomes
a nd Sugden (1982, 1987a). Exper i ment al t est s of t he t heor y ar e r e por t e d i n Loomes (f988a, 1988b),
Loomes a n d Sugden (1987b), a n d Loomes, St ar mer , and Sugden (1992).
2. A discussion of ESEs c a n b e f ound i n St ar mer (1992a) a nd St ar mer a nd Sugden (1993).
3. For a mor e det ai l ed appl i cat i on of r egr et t heor y t o t hes e types of deci si on probl ems, t he r e a de r is recom-
me n d e d t o consul t St ar mer a n d Sugden (1993).
4. The t e r m WUT is us e d i n t he cont ext of t hi s exper i ment t o r e f e r t o t he si mpl e model empl oyed by St ar mer
a nd Sugden (1993) t o expl ai n ESEs, a nd no i nf er ence shoul d b e drawn r egar di ng t he gener al i t y of t hi s
t erm.
5. Post - combi nat i on st at es t h a t subj ect s appl y t he wei ght i ng f unct i on "rr(.) t o t h e pr obabi l i t i es associ at ed wi t h
e a c h di sj oi nt event separat el y, i rrespect i ve of whe t he r t he r e ar e two ( or mor e ) di sj oi nt event s i n whi ch
i dent i cal out comes occur.
6. Not e t h a t i n pr ospect t heory, Ka h n e ma n a nd Tversky (1979) r ul e out t hi s conj unct i on of pr ef er ences by
post ul at i ng t he act of combination dur i ng t he edi t i ng stage.
7. The pa r a me t e r s ar e l i st ed i n t abl e 2.
8. Th e mi nor det ai l s omi t t ed f r om figures 1 a nd 2 ar e colors us ed i n t he comput er i zed display a n d a r e d box
i ndi cat i ng " your choi ce, " whi ch subjects moved t o ma ke t he i r selection.
9. Test s not di rect l y r el at ed t o t he cor e hypot heses i ndi cat ed t h a t subj ect s unde r s t ood t hi s i nf or mat i on a nd
di d br i ng i t t o b e a r on decisions.
10. Th e r e we r e 12 pr obl ems i n e a c h i nf or mat i onal envi r onment t o t e s t t he cor e hypot heses discussed, wi t h t he
r emai ni ng 16 quest i ons t est i ng ot he r hypotheses.
11. The p a r a me t e r set s ar e gi ven i n t a bl e 2 and, i n part i cul ar, 67 subjects f aced p a r a me t e r set 1 quest i ons
u n d e r ri sk a nd p a r a me t e r set 2 quest i ons u n d e r uncer t ai nt y, a nd 83 subjects f aced t he opposi t e. Moreover,
t he ext ent t o whi ch r esul t s wer e c ont a mi na t e d by subj ect s i nf er r i ng t h a t t he compl et e a nd i ncompl et e
i nf or mat i on probabi l i t y di st r i but i ons wer e i dent i cal was t es t ed by compar i ng t h e responses, f or all pr ob-
lems, of t he group who faced t he compl et e i nf or mat i on pr obl ems first, a nd f or t he gr oup who faced t he
i ncompl et e i nf or mat i on pr obl ems first. Thi s t e s t r eveal ed t h a t i n onl y two of 72 cases consi der ed wer e
r esponses be t we e n t h e two gr oups significantly di fferent at t he 5% level.
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