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538
Advances in Prospect Theory: Cumulative Representation of Uncertainty
 JOURNAL OF RISK AND UNCERTAINTY, 5:297323 (1992)
, 1992
"... We develop a new version of prospect theory that employs cumulative rather than separable decision weights and extends the theory in several respects. This version, called cumulative prospect theory, applies to uncertain as well as to risky prospects with any number of outcomes, and it allows differ ..."
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Cited by 1603 (12 self)
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We develop a new version of prospect theory that employs cumulative rather than separable decision weights and extends the theory in several respects. This version, called cumulative prospect theory, applies to uncertain as well as to risky prospects with any number of outcomes, and it allows different weighting functions for gains and for losses. Two principles, diminishing sensitivity and loss aversion, are invoked to explain the characteristic curvature of the value function and the weighting functions. A review of the experimental evidence and the results of a new experiment confirm a distinctive fourfold pattern of risk attitudes: risk aversion for gains and risk seeking for losses of high probability; risk seeking for gains and risk aversion for losses of low probability.
Curvature of the probability weighting function
 Management Science
, 1996
"... Empirical studies have shown that decision makers do not usually treat probabilities linearly. Instead, people tend to overweight small probabilities and underweight large probabilities. One way to model such distortions in decision making under risk is through a probability weighting function. We ..."
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Cited by 273 (4 self)
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Empirical studies have shown that decision makers do not usually treat probabilities linearly. Instead, people tend to overweight small probabilities and underweight large probabilities. One way to model such distortions in decision making under risk is through a probability weighting function. We present a nonparametric estimation procedure for assessing the probability weighting function and value function at the level of the individual subject. The evidence in the domain of gains supports a twoparameter weighting function, where each parameter is given a psychological interpretation: one parameter measures how the decision maker discriminates probabilities, and the other parameter measures how attractive the decision maker views gambling. These findings are consistent with a growing body of empirical and theoretical work attempting to establish a psychological rationale for the probability weighting function. ª 1999 Academic Press The perception of probability has a psychophysics all its own. If men have a 2 % chance of contracting a particular disease and women have a 1% chance, we perceive the risk for men as twice the risk for women. However, the same difference of 1 % appears less dramatic when the chance of con
Psychological Expected Utility Theory and Anticipatory Feelings
 Center, New York University
, 1997
"... We extend expected utility theory to situations in which agents experience feelings of anticipation prior to the resolution of uncertainty. We show how these anticipatory feelings may result in time inconsistency. We provide an example from portfolio theory to illustrate the potential impact of anti ..."
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Cited by 220 (8 self)
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We extend expected utility theory to situations in which agents experience feelings of anticipation prior to the resolution of uncertainty. We show how these anticipatory feelings may result in time inconsistency. We provide an example from portfolio theory to illustrate the potential impact of anticipation on asset prices. I.
EXPECTED UTILITY WITH PURELY SUBJECTIVE NONADDITIVE PROBABILITIES
, 1987
"... Acts are functions from the set of states of the world into the set of consequences. Savage proposed axioms regarding a binary relation on the set of acts which are necessary and sufficient for it to be representable by the functional gu(.)dP for some realvalued (utility) function u on the set of c ..."
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Cited by 207 (2 self)
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Acts are functions from the set of states of the world into the set of consequences. Savage proposed axioms regarding a binary relation on the set of acts which are necessary and sufficient for it to be representable by the functional gu(.)dP for some realvalued (utility) function u on the set of consequences and a (probability) measure P on the set of states of the world. The Ellsberg paradox leads us to reject one of Savage’s main axioms the Sure Thing Principleand develop a more general theory, in which the probability measure need not be additive.
Emotionbased choice
 Journal of Experimental Psychology: General
, 1999
"... In this article the authors develop a descriptive theory of choice using anticipated emotions. People are assumed to anticipate how they will feel about the outcomes of decisions and use their predictions to guide choice. The authors measure the pleasure associated with monetary outcomes of gambles ..."
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Cited by 204 (6 self)
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In this article the authors develop a descriptive theory of choice using anticipated emotions. People are assumed to anticipate how they will feel about the outcomes of decisions and use their predictions to guide choice. The authors measure the pleasure associated with monetary outcomes of gambles and offer an account of judged pleasure called decision affect theory. Then they propose a theory of choices between gambles based on anticipated pleasure. People are assumed to choose the option with greater subjective expected pleasure. Similarities and differences between subjective expected pleasure theory and subjective expected utility theory are discussed. Emotions have powerful effects on choice. Our actual feelings of happiness, sadness, and anger both color and shape our decisions. In addition, our imagined feelings of guilt, elation, or regret influence our decisions. In this article we refer to these two influences as experienced emotions and anticipated emotions. Experienced emotions affect many levels of cognitive processing. When we are in good moods, we are better problem solvers (Isen, 1984, 1987, 1993), more likely to remember happy events (Bower, 1981), more risk seeking (Kahn & Isen, 1993), and more optimistic about the chances of favorable events (Wright & Bower, 1992; Nygren, Isen, Taylor, & Dulin, 1996). When we are in bad moods, we are more likely to recall negative events (Bower, 1981) and overestimate the chances of unfavorable events (Johnson & Tversky, 1983). If we are also aroused, we make less discriminate use of information
Choice and the relative pleasure of consequences
 Psychological Bulletin
, 2000
"... Although pleasure played a central role in early theories of decision making, it gradually became peripheral, argely because of measurement concerns. Normative theories became more mathematical, and descriptive theories emphasized cognition over emotion. In recent years, there has been a renewed int ..."
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Cited by 105 (2 self)
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Although pleasure played a central role in early theories of decision making, it gradually became peripheral, argely because of measurement concerns. Normative theories became more mathematical, and descriptive theories emphasized cognition over emotion. In recent years, there has been a renewed interest in emotions and choice. This article examines attempts to model pleasure and pain in terms of utilities, decision weights, and counterfactual comparisons. Research on disappointment and regret has provided both empirical and theoretical insights. Many researchers now realize that the predictability of the emotions that follow from decisions is as important as the predictability of choice. Anyone who has ever made an important decision knows that emotions play a role. Not only do immediate motions, or those experienced while making a choice, shape decisions but also anticipated emotions about future consequences. Anticipated feelings of guilt, dread, and excitement allow people to simulate what life would be like if they made one choice or another. This article, examines (a) the history of choice theories that have, in one way or another, incorporated anticipated emotions; (b) the results of
The Priority Heuristic: Making Choices without TradeOffs
 Psychological Review
, 2006
"... Bernoulli’s framework of expected utility serves as a model for various psychological processes, including motivation, moral sense, attitudes, and decision making. To account for evidence at variance with expected utility, the authors generalize the framework of fast and frugal heuristics from infer ..."
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Cited by 91 (10 self)
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Bernoulli’s framework of expected utility serves as a model for various psychological processes, including motivation, moral sense, attitudes, and decision making. To account for evidence at variance with expected utility, the authors generalize the framework of fast and frugal heuristics from inferences to preferences. The priority heuristic predicts (a) the Allais paradox, (b) risk aversion for gains if probabilities are high, (c) risk seeking for gains if probabilities are low (e.g., lottery tickets), (d) risk aversion for losses if probabilities are low (e.g., buying insurance), (e) risk seeking for losses if probabilities are high, (f) the certainty effect, (g) the possibility effect, and (h) intransitivities. The authors test how accurately the heuristic predicts people’s choices, compared with previously proposed heuristics and 3 modifications of expected utility theory: securitypotential/aspiration theory, transferofattentionexchange model, and cumulative prospect theory.