Using these well-defined forms of risk, this study shows that monkeys’ choices conform to the internal reward valuations suggested by their utility functions. Thus, the utility functions predicted the animals’ preferences for variance-risk and skewness-risk. Specifically, for gambles with different variance but identical expected values (EVs), the monkeys preferred high-variance gambles at low EVs and low-variance gambles at high EVs in gambles with different skewness but identical EVs and variances, the animals preferred positively over symmetrical and negatively skewed gambles in a strongly transitive fashion. In direct choices, the animals’ preferences followed both second-order (variance) and third-order (skewness) stochastic dominance. The expected utilities calculated for various symmetrical and skewed gambles served to define formally the direction of stochastic dominance between gambles. Thus, we tested the extent to which empirically derived utility functions predicted preferences for variance-risk and skewness-risk in macaques. In this study, we also examined a form of risk related to the skewness of reward distributions (skewness-risk). A standard approach is to focus on the variance of reward distributions (variance-risk). In turn, this approach requires formal definitions of risk.
To assess the validity of utility representations, it is therefore important to examine risk preferences. In particular, utility functions are believed to reflect preferences toward risk, a key decision variable in many real-life situations. Utility is the fundamental variable thought to underlie economic choices.
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