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Cumulative prospect theory's functional menagerie

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Author Info
Henry Stott ()
Abstract

Many different functional forms have been suggested for both the value function and probability weighting function of Cumulative Prospect Theory (Tversky and Kahneman, 1992). There are also many stochastic choice functions available. Since these three components only make predictions when considered in combination, this paper examines the complete pattern of 256 model variants that can be constructed from twenty functions. All these variants are fit to experimental data and their explanatory power assessed. Significant interaction effects are observed. The best model has a power value function, a risky weighting function due to Prelec (1998), and a Logit function. Copyright Springer Science + Business Media, LLC 2006

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File URL: http://hdl.handle.net/10.1007/s11166-006-8289-6
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Publisher Info
Article provided by Springer in its journal Journal of Risk and Uncertainty.

Volume (Year): 32 (2006)
Issue (Month): 2 (March)
Pages: 101-130
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Handle: RePEc:kap:jrisku:v:32:y:2006:i:2:p:101-130

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Keywords: Cumulative prospect theory; Stochastic choice;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Booij, Adam S. & van Praag, Bernard M. S. & van de Kuilen, Gijs, 2009. "A Parametric Analysis of Prospect Theory's Functionals for the General Population," IZA Discussion Papers 4117, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  2. Cary Deck & Harris Schlesinger, 2008. "Exploring Higher-Order Risk Effects," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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