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On the Intuition of Rank-Dependent Utility

Author

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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 in the literature 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 for 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 adopted in these theories.

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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    References listed on IDEAS

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    More about this item

    Keywords

    rank-dependence; comonotonicity; Choquet integral; pessimism; uncertainty aversion; prospect theory;

    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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