Do People Maximize Quantiles

Payoff quantiles have been used for decision making in banking and investment (in the form of Value-at-Risk) and in the mining, oil and gas industries (in the form of "probabilities of exceeding" a certain level of production). However, it is unknown how common quantile-based decision making actually is among typical individual decision makers. This paper describes an experiment that aims to (1) compare how common quantile decision making is relative to expected utility maximization, and (2) estimate risk attitude parameters under the assumption of quantile preferences. The experiment has two parts. In the first part, individuals make pairwise choices between risky lotteries, and the competing models are fitted to the choice data. In the second part, we directly elicit a decision rule from a menu of alternatives. The results show that a quantile preference model outperforms expected utility for a considerable minority, 30%--50%, of participants, depending on the metric. The majority of individuals are risk averse, and women are more risk averse than men, under both models.