Risk Aversion in Cumulative Prospect Theory
نویسندگان
چکیده
منابع مشابه
Risk Aversion in Cumulative Prospect Theory
This paper characterizes the conditions for risk aversion in cumulative prospect theory where risk aversion is defined in the strong sense of Rothschild and Stiglitz (1970). Under weaker assumptions than differentiability we show that risk aversion implies convex weighting functions for gains and for losses but not necessarily a concave utility function. Also, we investigate the exact relations...
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Tversky and Kahneman have worked out an appealing model of decision making under uncertainty, involving rankand sign-dependent utilities. This model, cumulative prospect theory (CPT), as well as related models proposed by other authors, has received wide acclaim. Available information and psychological attitude facing ambiguity jointly determine the subjective likelihood values the decision mak...
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This paper derives conditions under which the standard decomposition of unconditional expected utility into marginal probabilities and conditional expected utilities generalizes to Cumulative Prospect Theory. The results are relevant for empirical analyses in which marginal probabilities are used as explanatory variables.
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Whilst Cumulative Prospect theory (CPT) provides an explanation of gambling on longshots at actuarially unfair odds, it cannot explain why people might bet on more favoured outcomes. This paper shows that this is explicable if the degree of loss aversion experienced by the agent is reduced for small-stake gambles (as a proportion of wealth), and probability distortions are greater over losses t...
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Cumulative prospect theory was introduced by Tversky and Kahneman so as to combine the empirical realism of their original prospect theory with the theoretical advantages of Quiggin’s rank-dependent utility. Preference axiomatizations were provided in several papers. All those axiomatizations, however, only consider decision under uncertainty. No axiomatization has been provided as yet for deci...
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ژورنال
عنوان ژورنال: Management Science
سال: 2008
ISSN: 0025-1909,1526-5501
DOI: 10.1287/mnsc.1070.0762