Cadogan, Godfrey (2010): Commutative Prospect Theory and Stopped Behavioral Processes for Fair Gambles.
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Abstract
We augment Tversky and Khaneman (1992) (“TK92”) Cumulative Prospect Theory (“CPT”) function space with a sample space for “states of nature”, and depict a commutative map of behavior on the augmented space. In particular, we use a homotopy lifting property to mimic behavioral stochastic processes arising from deformation of stochastic choice into outcome. A psychological distance metric (in the class of DudleyTalagrand inequalities) for stochastic learning, was used to characterize stopping times for behavioral processes. In which case, for a class of nonseparable spacetime probability density functions, we find that behavioral processes are uniformly stopped before the goal of fair gamble is attained. Further, we find that when faced with a fair gamble, agents exhibit submartingale [supermartingale] behavior, subjectively, under CPT probability weighting scheme. We show that even when agents’ have classic von NeumanMorgenstern preferences over probability distribution, and know that the gamble is a martingale, they exhibit probability weighting to compensate for probability leakage arising from the their stopped behavioral process.
Item Type:  MPRA Paper 

Original Title:  Commutative Prospect Theory and Stopped Behavioral Processes for Fair Gambles 
Language:  English 
Keywords:  commutative prospect theory; homotopy; stopping time; behavioral stochastic process 
Subjects:  D  Microeconomics > D0  General > D03  Behavioral Economics; Underlying Principles D  Microeconomics > D8  Information, Knowledge, and Uncertainty > D81  Criteria for DecisionMaking under Risk and Uncertainty D  Microeconomics > D7  Analysis of Collective DecisionMaking > D70  General C  Mathematical and Quantitative Methods > C0  General C  Mathematical and Quantitative Methods > C0  General > C02  Mathematical Methods 
Item ID:  22351 
Depositing User:  godfrey cadogan 
Date Deposited:  29. Apr 2010 00:20 
Last Modified:  12. Feb 2013 14:52 
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URI:  http://mpra.ub.unimuenchen.de/id/eprint/22351 
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Commutative Prospect Theory and Stopped Behavioral Processes for Fair Gambles. (deposited 28. Apr 2010 00:11)
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