Cadogan, Godfrey
(2010):
*Asymptotic Theory Of Stochastic Choice Functionals For Prospects With Embedded Comotonic Probability Measures.*

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## Abstract

We introduce a monotone class theory of Prospect Theory's value functions, which shows that they can be replaced almost surely by a topological lifting comprised of a class of compact isomorphic maps that embed weakly co-monotonic probability measures, attached to state space, in outcome space. Thus, agents solve a signal extraction problem to obtain estimates of empirical probability weights for prospects under risk and uncertainty. By virtue of the topological lifting, we prove an almost sure isomorphism theorem between compact stochastic choice operators, and well defined outcomes which, under Brouwer-Schauder theory, guarantees fixed point convergence in convex choice sets. Along the way we introduce a risk operator in the Hoffman-Jorgensen class of lifting operators, and value function [averaging] operators with respect to Radon measure. In that set up, suitable binary operations on gain-loss space show that our risk operator is isometric for gains and skewed for losses. The point spectrum from this operator constitutes the range of admissible observations for loss aversion index in a well designed experiment.

Item Type: | MPRA Paper |
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Original Title: | Asymptotic Theory Of Stochastic Choice Functionals For Prospects With Embedded Comotonic Probability Measures |

Language: | English |

Keywords: | monotone class theorem; stochastic choice functional; embedded probability; comonotonic probability; isomorphism |

Subjects: | D - Microeconomics > D0 - General > D03 - Behavioral Microeconomics: Underlying Principles D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics > C44 - Operations Research ; Statistical Decision Theory C - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical Methods |

Item ID: | 22380 |

Depositing User: | g charles-cadogan |

Date Deposited: | 29 Apr 2010 00:38 |

Last Modified: | 26 Sep 2019 12:21 |

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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/22380 |