Prospect Theory for Continuous Distributions Games and Prospects
AbstractWe 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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Bibliographic InfoPaper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 07-30.
Length: 21 pages
Date of creation: Mar 2007
Date of revision:
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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-12-01 (All new papers)
- NEP-GTH-2007-12-01 (Game Theory)
- NEP-UPT-2007-12-01 (Utility Models & Prospect Theory)
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