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On the Intuition of Rank-Dependent Utility

  • Diecidue, Enrico
  • Wakker, Peter P

Among the most popular models for decision under risk and uncertainty are the rank-dependent models, introduced by Quiggin and Schmeidler. Central concepts in these models are rank-dependence and comonotonicity. It has been suggested that these concepts are technical tools that have no intuitive or empirical content. This paper describes such contents. As a result, rank-dependence and comonotonicity become natural concepts upon which preference conditions, empirical tests, and improvements in utility measurement can be based. Further, a new derivation of the rank-dependent models is obtained. It is not based on observable preference axioms or on empirical data, but naturally follows from the intuitive perspective assumed. We think that the popularity of the rank-dependent theories is mainly due to the natural concepts used in these theories. Copyright 2001 by Kluwer Academic Publishers

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Article provided by Springer in its journal Journal of Risk and Uncertainty.

Volume (Year): 23 (2001)
Issue (Month): 3 (November)
Pages: 281-98

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Handle: RePEc:kap:jrisku:v:23:y:2001:i:3:p:281-98
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