Testing for juxtaposition and event-splitting effects

Regret theory predicts that choices over prospects will be systematically influenced by the juxtaposition of outcomes in the payoff matrix. Experiments have found apparent juxtaposition effects of this kind. However, these experiments have not controlled for event-splitting effects (ESEs), by which the subjective weight given to an outcome depends on the number of states of the world in which it occurs, as well as on their combined probability. An experiment is reported that tests independently for juxtaposition effects and ESEs. The results suggest that the apparent juxtaposition effects found in previous experiments are largely due to ESEs.The research reported in this article was supported by the Economic and Social Research Council of the UK (award numbers R 00 23 2236 and R 000 23 2269) and by the Economics Research Centre of the University of East Anglia. We are grateful to Judith Mehta for help in carrying out the experiments, and to the editor and two anonymous referees for valuable comments. The idea that our previous experiments might have revealed event-splitting effects rather than juxtaposition effects was first suggested to us by Stephen Davies.