A language for the construction of preferences under uncertainty
AbstractThis paper studies a target-based procedure to rank lotteries that is normatively and observationally equivalent to the expected utility model. In view of this equivalence, the traditional utility-based language for decision making may be substituted with an alternative target-based language. Switching language may have significant modelling consequences. To exemplify, we contrast the utility-based viewpoint of prospect theory against the target-based viewpoint and provide an explanation of Allais’ paradox based on context dependence instead of distorted probabilities.
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Bibliographic InfoPaper provided by EconWPA in its series Game Theory and Information with number 0509002.
Length: 21 pages
Date of creation: 05 Sep 2005
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expected utility; prospect theory; target-based decisions; choice anomalies; benchmarking;
Find related papers by JEL classification:
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
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