PROSPECT THEORY 265 University of Michigan. The pattern of results was essentially identical to the results obtained from Israeli subjects. The reliance on hypothetical choices raises obvious questions regarding the validity of the method and the generalizability of the results. We are keenly aware of these problems. However, all other methods that have been used to test utility theory also suffer from severe drawbacks. Real choices can be investigated either in the field by naturalistic or statistical observations of economic behavior, or in the laboratory. Field studies can only provide for rather crude tests of qualitative predictions, because probabilities and utilities cannot be adequately measured in such contexts. Laboratory experiments have been designed to obtain precise measures of utility and probability from actual choices, but these experimental studies typically involve contrived gambles for small stakes, and a large number of repetitions of very similar problems. These features of laboratory gambling complicate the interpretation of the results and restrict their generality By default, the method of hypothetical choices emerges as the simplest pro cedure by which a large number of theoretical questions can be investigated the use of the method relies on the assumption that people often know how they ould behave in actual situations of choice, and on the further assumption that the subjects have no special reason to disguise their true preferences. If people are easonably accurate in predicting their choices, the presence of common and systematic violations of expected utility theory in hypothetical problems provides presumptive evidence against that theory Certainty, Probability, and Possibility In expected utility theory, the utilities of outcomes are weighted by their probabilities. The present section describes a series of choice problems in which eople's preferences systematically violate this principle. We first show that people overweight outcomes that are considered certain, relative to outcomes which are merely probable phenomenon which we label the certainty effect The best known counter-example to expected utility theory which exploits the certainty effect was introduced by the French economist Maurice Allais in 1953 [2. Allais'example has been discussed from both normative and descriptive standpoints by many authors [28, 38]. The following pair of choice problems is a variation of Allais' example, which differs from the original in that it refers to moderate rather than to extremely large gains. The number of respondents who answered each problem is denoted by N, and the percentage who choose each option is given in brackets PRObLEM 1: Choose between A 2, 500 with probability 33, B: 2, 400 with certainty 2, 400 with probability 66 O with probabilit [18]