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A simple preference foundation of cumulative prospect theory with power utility

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  • Wakker, Peter P.
  • Zank, Horst

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 46 (2002)
Issue (Month): 7 (July)
Pages: 1253-1271

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Handle: RePEc:eee:eecrev:v:46:y:2002:i:7:p:1253-1271

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References

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  1. Fennema, Hein & van Assen, Marcel, 1998. "Measuring the Utility of Losses by Means of the Tradeoff Method," Journal of Risk and Uncertainty, Springer, vol. 17(3), pages 277-95, December.
  2. Hong Chew Soo & Karni Edi, 1994. "Choquet Expected Utility with a Finite State Space: Commutativity and Act-Independence," Journal of Economic Theory, Elsevier, vol. 62(2), pages 469-479, April.
  3. Wakker, Peter, 1993. "Additive representations on rank-ordered sets : II. The topological approach," Journal of Mathematical Economics, Elsevier, vol. 22(1), pages 1-26.
  4. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  5. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  6. Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, vol. 55(1), pages 95-115, January.
  7. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
  8. Fetherstonhaugh, David, et al, 1997. "Insensitivity to the Value of Human Life: A Study of Psychophysical Numbing," Journal of Risk and Uncertainty, Springer, vol. 14(3), pages 283-300, May-June.
  9. Chateauneuf, Alain & Wakker, Peter, 1993. "From local to global additive representation," Journal of Mathematical Economics, Elsevier, vol. 22(6), pages 523-545.
  10. Nakamura, Yutaka, 1995. "Rank dependent utility for arbitrary consequence spaces," Mathematical Social Sciences, Elsevier, vol. 29(2), pages 103-129, April.
  11. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  12. Blackorby, Charles & Donaldson, David, 1982. "Ratio-Scale and Translation-Scale Full Interpersonal Comparability without Domain Restrictions: Admissible Social-Evaluation Functions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(2), pages 249-68, June.
  13. Diecidue, E. & Wakker, P.P., 2000. "On the Intuition of Rank-Dependent Utility," Discussion Paper 2000-74, Tilburg University, Center for Economic Research.
  14. Cohen, Michele & Jaffray, Jean-Yves & Said, Tanios, 1987. "Experimental comparison of individual behavior under risk and under uncertainty for gains and for losses," Organizational Behavior and Human Decision Processes, Elsevier, vol. 39(1), pages 1-22, February.
  15. Safra, Zvi & Segal, Uzi, 1998. "Constant Risk Aversion," Journal of Economic Theory, Elsevier, vol. 83(1), pages 19-42, November.
  16. Luce, R Duncan & Fishburn, Peter C, 1991. " Rank- and Sign-Dependent Linear Utility Models for Finite First-Order Gambles," Journal of Risk and Uncertainty, Springer, vol. 4(1), pages 29-59, January.
  17. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-87, May.
  18. Tversky, Amos & Kahneman, Daniel, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1039-61, November.
  19. Chateauneuf, Alain, 1999. "Comonotonicity axioms and rank-dependent expected utility theory for arbitrary consequences," Journal of Mathematical Economics, Elsevier, vol. 32(1), pages 21-45, August.
  20. Milton Friedman & L. J. Savage, 1948. "The Utility Analysis of Choices Involving Risk," Journal of Political Economy, University of Chicago Press, vol. 56, pages 279.
  21. Harless, David W & Camerer, Colin F, 1994. "The Predictive Utility of Generalized Expected Utility Theories," Econometrica, Econometric Society, vol. 62(6), pages 1251-89, November.
  22. Hadar, Josef & Seo, Tae Kun, 1995. "Asset diversification in Yaari's dual theory," European Economic Review, Elsevier, vol. 39(6), pages 1171-1180, June.
  23. Mohammed Abdellaoui, 2000. "Parameter-Free Elicitation of Utility and Probability Weighting Functions," Management Science, INFORMS, vol. 46(11), pages 1497-1512, November.
  24. Chris Starmer, 2000. "Developments in Non-expected Utility Theory: The Hunt for a Descriptive Theory of Choice under Risk," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 332-382, June.
  25. Harry Markowitz, 1952. "The Utility of Wealth," Journal of Political Economy, University of Chicago Press, vol. 60, pages 151.
  26. R. Duncan Luce & Detlof von Winterfeldt, 1994. "What Common Ground Exists for Descriptive, Prescriptive, and Normative Utility Theories?," Management Science, INFORMS, vol. 40(2), pages 263-279, February.
  27. Drazen Prelec, 1998. "The Probability Weighting Function," Econometrica, Econometric Society, vol. 66(3), pages 497-528, May.
  28. Fishburn, Peter C, 1977. "Mean-Risk Analysis with Risk Associated with Below-Target Returns," American Economic Review, American Economic Association, vol. 67(2), pages 116-26, March.
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Citations

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Cited by:
  1. Eyal Baharad & Doron Kliger, 2013. "Market failure in light of non-expected utility," Theory and Decision, Springer, vol. 75(4), pages 599-619, October.
  2. Enrico Diecidue & Ulrich Schmidt & Horst Zank, 2008. "Parametric Weighting Functions," Kiel Working Papers 1395, Kiel Institute for the World Economy.
  3. Ulrich Schmidt & Horst Zank, 2012. "A genuine foundation for prospect theory," Journal of Risk and Uncertainty, Springer, vol. 45(2), pages 97-113, October.
  4. Francis C. Chu & Joseph Y. Halpern, 2004. "Great expectations. Part II: Generalized expected utility as a universal decision rule," Game Theory and Information 0411004, EconWPA.
  5. Schade, Christian & Schroeder, Andreas & Krause, Kai Oliver, 2010. "Coordination after gains and losses: Is prospect theory’s value function predictive for games?," Structural Change in Agriculture/Strukturwandel im Agrarsektor (SiAg) Working Papers 59524, Humboldt University Berlin, Department of Agricultural Economics.
  6. Horst Zank, 2010. "On probabilities and loss aversion," Theory and Decision, Springer, vol. 68(3), pages 243-261, March.
  7. Valery Polkovnichenko, 2005. "Household Portfolio Diversification: A Case for Rank-Dependent Preferences," Review of Financial Studies, Society for Financial Studies, vol. 18(4), pages 1467-1502.
  8. Laetitia Placido & Olivier L'Haridon, 2008. "An allais paradox for generalized expected utility theories?," Economics Bulletin, AccessEcon, vol. 4(19), pages 1-6.

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