Is Cumulative Prospect Theory a Serious Alternative for the Expected Utility Paradigm?

Lewandowski, Michal (2006): Is Cumulative Prospect Theory a Serious Alternative for the Expected Utility Paradigm?

Abstract

The purpose of this paper is to demonstrate that Cumulative Prospect Theory is a serious alternative for Expected Utility Theory. It does not contradict Expected Utility, but includes it as a special example. A very useful example, because simple and yet very flexible, Expected Utility proved indispensable in many areas of economic analysis. Though a special example, because it does not capture some important effects observed in real choice behavior.

• Item Type: MPRA Paper
• Language: English
• Keywords: Cumulative Prospect Theory, CPT, Expected Utility Theory, prospect stochastic dominance
• 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 > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior

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