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An Axiomatization of Cumulative Prospect Theory for Decision under Risk

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Chateauneuf, Alain
Wakker, Peter

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Abstract

Cumulative prospect theory was introduced by Tversky and Kahneman so as to combine the empirical realism of their original prospect theory with the theoretical advantages of Quiggin's rank-dependent utility. Preference axiomatizations were provided in several papers. All those axiomatizations, however, only consider decision under uncertainty. No axiomatization has been provided as yet for decision under risk, i.e., the case in which given probabilities are transformed. Providing the latter is the purpose of this note. The resulting axiomatization is considerably simpler than that for uncertainty. Copyright 1999 by Kluwer Academic Publishers

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Article provided by Springer in its journal Journal of Risk and Uncertainty.

Volume (Year): 18 (1999)
Issue (Month): 2 (August)
Pages: 137-45
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Handle: RePEc:kap:jrisku:v:18:y:1999:i:2:p:137-45

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  1. Peter Brooks & Horst Zank, 2005. "Loss Averse Behavior," Journal of Risk and Uncertainty, Springer, vol. 31(3), pages 301-325, December. [Downloadable!] (restricted)
  2. Marcello Basili & Stefano Dalle Mura, 2008. "Ambiguous Money Distribution And The Price Stickiness Phenomenon: A Rationale From An Ambiguous Rational Expectations Approach," Department of Economic Policy, Finance and Development (DEPFID) University of Siena 0708, Department of Economic Policy, Finance and Development (DEPFID), University of Siena. [Downloadable!]
  3. Marcello Basili & Alain Chateauneuf & Fulvio Fontini, 2004. "Choices under ambiguity with familiar and unfamiliar outcomes," Cahiers de la Maison des Sciences Economiques b04115, Université Panthéon-Sorbonne (Paris 1). [Downloadable!]
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  4. Raphaël Giraud, 2004. "Framing under risk : Endogenizing the Reference Point and Separating Cognition and Decision," Cahiers de la Maison des Sciences Economiques bla04090, Université Panthéon-Sorbonne (Paris 1). [Downloadable!]
  5. Horst Zank, 2007. "Social welfare functions with a reference income," Social Choice and Welfare, Springer, vol. 28(4), pages 609-636, June. [Downloadable!] (restricted)
  6. Marcello Basili & Stefano Dalle Mura, 2004. "Ambiguity and macroeconomics:a rationale for price stickiness," Department of Economics University of Siena 428, Department of Economics, University of Siena. [Downloadable!]
  7. Ido Erev & Ira Glozman & Ralph Hertwig, 2008. "What impacts the impact of rare events," Journal of Risk and Uncertainty, Springer, vol. 36(2), pages 153-177, April. [Downloadable!] (restricted)
  8. Matthew Joseph Ryan & Rhema Vaithianathan, 2003. "Adverse Selection and Insurance Contracting: A Rank-Dependent Utility Analysis," The B.E. Journal of Theoretical Economics, Berkeley Electronic Press, vol. 0(1). [Downloadable!]
  9. Tuthill, Jonathan & Frechette, Darren, 2002. "Non-Expected Utility Theories: Weighted Expected, Rank Dependent, And Cumulative Prospect Theory Utility," 2002 Conference, April 22-23, 2002, St. Louis, Missouri 19073, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management. [Downloadable!]
  10. Valerie Seror, 2008. "Fitting observed and theoretical choices - women's choices about prenatal diagnosis of Down syndrome," Health Economics, John Wiley & Sons, Ltd., vol. 17(5), pages 557-577. [Downloadable!]
  11. Horst Zank, 2007. "On the Paradigm of Loss Aversion," The School of Economics Discussion Paper Series 0710, Economics, The University of Manchester. [Downloadable!]
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