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Empirical Rules of Thumb for Choice under Uncertainty

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  • Rolf Aaberge

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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.

Suggested Citation

  • Rolf Aaberge, 2002. "Empirical Rules of Thumb for Choice under Uncertainty," ICER Working Papers 22-2002, ICER - International Centre for Economic Research.
  • Handle: RePEc:icr:wpicer:22-2002
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    References listed on IDEAS

    as
    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.
    2. Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, vol. 55(1), pages 95-115, January.
    3. Quiggin, John & Horowitz, John, 1995. "Time and Risk," Journal of Risk and Uncertainty, Springer, vol. 10(1), pages 37-55, January.
    4. Kelsey, David, 1993. "Choice under Partial Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(2), pages 297-308, May.
    5. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
    6. Segal, Uzi, 1987. "Some remarks on Quiggin's anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 8(1), pages 145-154, March.
    7. Quiggin, John, 1987. "Decision weights in anticipated utility theory : Response to Segal," Journal of Economic Behavior & Organization, Elsevier, vol. 8(4), pages 641-645, December.
    8. Quiggin John & Wakker Peter, 1994. "The Axiomatic Basis of Anticipated Utility: A Clarification," Journal of Economic Theory, Elsevier, vol. 64(2), pages 486-499, December.
    9. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    10. Milton Friedman & L. J. Savage, 1948. "The Utility Analysis of Choices Involving Risk," Journal of Political Economy, University of Chicago Press, vol. 56, pages 279-279.
    11. Ramsey, Frank P., 1926. "Truth and Probability," Histoy of Economic Thought Chapters,in: Braithwaite, R. B. (ed.), The Foundations of Mathematics and other Logical Essays, chapter 7, pages 156-198 McMaster University Archive for the History of Economic Thought.
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    More about this item

    Keywords

    rank-dependent utility; maximin; maximax; mid-range;

    JEL classification:

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

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