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Comparative Statics for Rank-Dependent Expected Utility Theory

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  • Quiggin, John

Abstract

Recently, a number of generalizations of the expected utility (EU) model have been proposed. In order to make such generalizations useful, it is necessary that they should yield sharp comparative static results, like those obtained using EU theory. In this article, rank dependent expected utility (RDEU) theory, a generalization of EU theory based on the concept of probability weighting, is examined. A number of methods of extending results from EU to RDEU are considered. It is shown that a major class of comparative static results can be extended to the RDEU model, but not to the case of general smooth preferences. This is because RDEU maintains the separation between probabilities and utilities that is abandoned in the general case. Copyright 1991 by Kluwer Academic Publishers

Suggested Citation

  • Quiggin, John, 1991. "Comparative Statics for Rank-Dependent Expected Utility Theory," Journal of Risk and Uncertainty, Springer, vol. 4(4), pages 339-350, December.
  • Handle: RePEc:kap:jrisku:v:4:y:1991:i:4:p:339-50
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    1. Bone, John & Hey, John & Suckling, John, 1999. "Are Groups More (or Less) Consistent Than Individuals?," Journal of Risk and Uncertainty, Springer, vol. 18(1), pages 63-81, April.
    2. Bone, John, 1998. "Risk-sharing CARA individuals are collectively EU," Economics Letters, Elsevier, vol. 58(3), pages 311-317, March.
    3. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475, March.
    4. Guth, Werner & Schmittberger, Rolf & Schwarze, Bernd, 1982. "An experimental analysis of ultimatum bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 367-388, December.
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