  Challenge Theory (CT), a new approach to decision under risk departs
significantly from expected utility, and is based on firmly psychological,
rather than economic, assumptions. The paper demonstrates that a purely
cognitive-psychological paradigm for decision under risk can yield excellent
predictions, comparable to those attained by more complex economic or
psychological models that remain attached to conventional economic constructs
and assumptions. The study presents a new model for predicting the popularity
of choices made in binary risk problems. A CT-based regression model is tested
on data gathered from 126 respondents who indicated their preferences with
respect to 44 choice problems. Results support CT's central hypothesis,
strongly associating between the Challenge Index (CI) attributable to every
binary risk problem, and the observed popularity of the bold prospect in that
problem (with r=-0.92 and r=-0.93 for gains and for losses, respectively). The
novelty of the CT perspective as a new paradigm is illuminated by its simple,
single-index (CI) representation of psychological effects proposed by Prospect
Theory for describing choice behavior (certainty effect, reflection effect,
overweighting small probabilities and loss aversion).
