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On the Intuition of Rank-Dependent Utility

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  • Diecidue, E.

    (Tilburg University, Center For Economic Research)

  • Wakker, P.P.

    (Tilburg University, Center For Economic Research)

Abstract

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
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Diecidue, E. & Wakker, P.P., 2000. "On the Intuition of Rank-Dependent Utility," Discussion Paper 2000-74, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:f4b5fed1-0654-4f78-90fa-f4a007c3a7ca
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    More about this item

    Keywords

    rank-dependence; comonotonicity; Choquet integral; pessimism; uncertainty aversion; prospect theory;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General

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