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Empirical rules of thumb for choice under uncertainty

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  • Rolf Aaberge

Abstract

A substantial body of empirical evidence shows that individuals overweight extreme events and act in conflict with the expected utility theory. These findings were the primary motivation behind the development of the rank-dependent utility theory. The purpose of this paper is to demonstrate that some plausible empirical rules of thumb for choice under uncertainty can be rationalized by the rank-dependent utility theory.
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Suggested Citation

  • Rolf Aaberge, 2011. "Empirical rules of thumb for choice under uncertainty," Theory and Decision, Springer, vol. 71(3), pages 431-438, September.
    • Handle: RePEc:kap:theord:v:71:y:2011:i:3:p:431-438
    DOI: 10.1007/s11238-010-9230-7
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    1. Diecidue, Enrico & Wakker, Peter P, 2001. "On the Intuition of Rank-Dependent Utility," Journal of Risk and Uncertainty, Springer, vol. 23(3), pages 281-298, November.
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    8. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
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    More about this item

    Keywords

    Rank-dependent utility; Maximin; Maximax; Mid-range; D81;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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