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Prospect Theory for Continuous Distributions Games and Prospects

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Author Info
Marc Oliver Rieger (ETH Zurich, Department of Mathematics)
Mei Wang (University of Zurich, ISB)
Abstract

We extend the original form of Prospect Theory by Kahneman and Tversky from finite lotteries to arbitrary probability distributions, thus paving the way for applications in economics and finance. Moreover, we suggest a method how to incorporate a crucial step of the “editing phase” into Prospect Theory and to remove in this way the discontinuity of the original model.

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File URL: http://ssrn.com/abstract=1020042
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Publisher Info
Paper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 07-30.

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Length: 21 pages
Date of creation: Mar 2007
Date of revision:
Handle: RePEc:chf:rpseri:rp0730

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Web page: http://www.SwissFinanceInstitute.ch
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Related research
Keywords: Prospect Theory; Cumulative Prospect Theory; continuity; probability weighting; first-order stochastic dominance.;

Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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This page was last updated on 2009-11-30.

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