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Problems of utility and prospect theories. A discontinuity of Prelec’s function

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  • Harin, Alexander

Abstract

A possibility of the existence of a discontinuity of Prelec’s (probability weighting) function W(p) at the probability p = 1 is discussed. This possibility is supported by the Aczél–Luce question whether Prelec’s weighting function W(p) is equal to 1 at p = 1, by the purely mathematical restrictions and the “certain–uncertain” inconsistency of the random–lottery incentive experiments. The results of the well-known experiments support this possibility as well.

Suggested Citation

  • Harin, Alexander, 2014. "Problems of utility and prospect theories. A discontinuity of Prelec’s function," MPRA Paper 61027, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:61027
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    References listed on IDEAS

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    More about this item

    Keywords

    utility; prospect theory; certainty effect; experiment; Prelec; probability weighting function;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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