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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.

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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.

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