Certainty Equivalent Representation of Binary Gambles That Are Decomposed into Risky and Sure Parts
This paper develops a weighted additive model for certainty equivalents of binary gambles with a segregation form, in the sense that they are decomposition into sure gains and risky gambles. The effect of adding a sure gain to the preference for a risky gamble is considered to be evaluated by weight. First, a certainty equivalent of every gamble is decomposed into the addition of a sure gain and a conditional certainty equivalent. Second, two new conditions are provided to express the conditional certainty equivalent as a multiplicative form by weight.
Volume (Year): 2 (2012)
Issue (Month): (May)
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References listed on IDEAS
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- Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, vol. 55(1), pages 95-115, January.
- Peter Fishburn, 1980. "A simple model for the utility of gambling," Psychometrika, Springer;The Psychometric Society, vol. 45(4), pages 435-448, December.
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"Prospect Theory: An Analysis of Decision under Risk,"
Levine's Working Paper Archive
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- Enrico Diecidue & Ulrich Schmidt & Peter P. Wakker, 2004. "The Utility of Gambling Reconsidered," Journal of Risk and Uncertainty, Springer, vol. 29(3), pages 241-259, December.
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