Four Internal Inconsistencies in Tversky and Kahneman’s (1992) Cumulative Prospect Theory Article: A Case Study in Ambiguous Theoretical Scope and Ambiguous Parsimony

Abstract

Scholars heavily rely on theoretical scope as a tool to challenge existing theory. We advocate that scientific discovery could be accelerated if far more effort were invested into also overtly specifying and painstakingly delineating the intended purview of any proposed new theory at the time of its inception. As a case study, we consider Tversky and Kahneman (1992). They motivated their Nobel-Prize-winning cumulative prospect theory with evidence that in each of two studies, roughly half of the participants violated independence, a property required by expected utility theory (EUT). Yet even at the time of inception, new theories may reveal signs of their own limited scope. For example, we show that Tversky and Kahneman’s findings in their own test of loss aversion provide evidence that at least half of their participants violated their theory, in turn, in that study. We highlight a combination of conflicting findings in the original article that make it ambiguous to evaluate both cumulative prospect theory’s scope and its parsimony on the authors’ own evidence. The Tversky and Kahneman article is illustrative of a social and behavioral research culture in which theoretical scope plays an extremely asymmetric role: to call existing theory into question and motivate surrogate proposals.