Additive Utility in Prospect Theory

Bleichrodt, H., Schmidt, Ulrich and Zank, H. (2009) Additive Utility in Prospect Theory Management Science, 55 (5). pp. 863-873.

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Abstract

Prospect theory is currently the main descriptive theory of decision under uncertainty. It generalizes expected utility by introducing nonlinear decision weighting and loss aversion. A difficulty in the study of multiattribute utility under prospect theory is to determine when an attribute yields a gain or a loss. One possibility, adopted in the theoretical literature on multiattribute utility under prospect theory, is to assume that a decision maker determines whether the complete outcome is a gain or a loss. In this holistic evaluation, decision weighting and loss aversion are general and attribute-independent. Another possibility, more common in the empirical literature, is to assume that a decision maker has a reference point for each attribute. We give preference foundations for this attribute-specific evaluation where decision weighting and loss aversion are depending on the attributes.

Document Type: Article
Keywords: additive utilityprospect theory decision weighting loss aversion probability weighting function parameter-free elicitation loss aversion nonexpected utility decision-analysis uncertainty choice foundations risk preference
Research affiliation: Kiel University
OceanRep > The Future Ocean - Cluster of Excellence
Refereed: Yes
ISSN: 0025-1909
Projects: Future Ocean
Date Deposited: 11 Feb 2011 12:14
Last Modified: 04 Oct 2017 15:16
URI: http://eprints.uni-kiel.de/id/eprint/9295

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