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Utility Theory with Probability Dependent Outcome Valuation: Extensions and Applications

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  • Karni, Edi
  • Schlee, Edward E

Abstract

This article extends Karni's (1992) Utility Theory with Probability Dependent Outcome Valuation (UTP-DOV) to accommodate a wider set of preferences, and applies the new representation to a variety of decision problems under risk. First, we present a new, more general, axiomatization of UTPDOV that renders the underlying intuition more transparent. Second, we develop sufficient conditions under which UTPDOV satisfies the betweenness and the ordinal independence axioms. Finally, we examine functional forms of the UTPDOV model that are consistent with several well known departures from the independence axiom. Copyright 1995 by Kluwer Academic Publishers

Suggested Citation

  • Karni, Edi & Schlee, Edward E, 1995. "Utility Theory with Probability Dependent Outcome Valuation: Extensions and Applications," Journal of Risk and Uncertainty, Springer, vol. 10(2), pages 127-142, March.
  • Handle: RePEc:kap:jrisku:v:10:y:1995:i:2:p:127-42
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    References listed on IDEAS

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    1. Keren, Gideon & Roelofsma, Peter, 1995. "Immediacy and Certainty in Intertemporal Choice," Organizational Behavior and Human Decision Processes, Elsevier, vol. 63(3), pages 287-297, September.
    2. Vital Anderhub & Werner Güth & Uri Gneezy & Doron Sonsino, 2001. "On the Interaction of Risk and Time Preferences: An Experimental Study," German Economic Review, Verein für Socialpolitik, vol. 2(3), pages 239-253, August.
    3. Goeree, Jacob K. & Holt, Charles A. & Laury, Susan K., 2002. "Private costs and public benefits: unraveling the effects of altruism and noisy behavior," Journal of Public Economics, Elsevier, vol. 83(2), pages 255-276, February.
    4. Starmer, Chris & Sugden, Robert, 1991. "Does the Random-Lottery Incentive System Elicit True Preferences? An Experimental Investigation," American Economic Review, American Economic Association, vol. 81(4), pages 971-978, September.
    5. George Wu, 1999. "Anxiety and Decision Making with Delayed Resolution of Uncertainty," Theory and Decision, Springer, vol. 46(2), pages 159-199, April.
    6. Butler, J S & Moffitt, Robert, 1982. "A Computationally Efficient Quadrature Procedure for the One-Factor Multinomial Probit Model," Econometrica, Econometric Society, vol. 50(3), pages 761-764, May.
    7. Martin Ahlbrecht & Martin Weber, 1997. "An Empirical Study on Intertemporal Decision Making Under Risk," Management Science, INFORMS, vol. 43(6), pages 813-826, June.
    8. Chew, Soo Hong & Ho, Joanna L, 1994. "Hope: An Empirical Study of Attitude toward the Timing of Uncertainty Resolution," Journal of Risk and Uncertainty, Springer, vol. 8(3), pages 267-288, May.
    9. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
    10. Vernon L. Smith, 1969. "Measuring Nonmonetary Utilities in Uncertain Choices: The Ellsberg Urn," The Quarterly Journal of Economics, Oxford University Press, vol. 83(2), pages 324-329.
    11. Camerer, Colin F, 1989. "An Experimental Test of Several Generalized Utility Theories," Journal of Risk and Uncertainty, Springer, vol. 2(1), pages 61-104, April.
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    Cited by:

    1. Battigalli, Pierpaolo & Dufwenberg, Martin, 2009. "Dynamic psychological games," Journal of Economic Theory, Elsevier, vol. 144(1), pages 1-35, January.
    2. Geiger, Gebhard, 2002. "On the statistical foundations of non-linear utility theory: The case of status quo-dependent preferences," European Journal of Operational Research, Elsevier, vol. 136(2), pages 449-465, January.

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