Problems of utility and prospect theories. A discontinuity of Prelec’s function

Harin, Alexander (2014): Problems of utility and prospect theories. A discontinuity of Prelec’s function.

Abstract

A possibility of the existence of a discontinuity of Prelec’s (probability weighting) function W(p) at the probability p = 1 is discussed. This possibility is supported by the Aczél–Luce question whether Prelec’s weighting function W(p) is equal to 1 at p = 1, by the purely mathematical restrictions and the “certain–uncertain” inconsistency of the random–lottery incentive experiments. The results of the well-known experiments support this possibility as well.

• Item Type: MPRA Paper
• Language: English
• Keywords: utility; prospect theory; certainty effect; experiment; Prelec; probability weighting function
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General; C - Mathematical and Quantitative Methods > C9 - Design of Experiments; C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty

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