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On the Intuition of RankDependent Utility
, 2000
"... Among the most popular models for decision under risk and uncertainty are the rankdependent models, introduced by Quiggin and Schmeidler. Central concepts in these models are rankdependence and comonotonicity. It has been suggested in the literature that these concepts are technical tools that hav ..."
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Cited by 37 (0 self)
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Among the most popular models for decision under risk and uncertainty are the rankdependent models, introduced by Quiggin and Schmeidler. Central concepts in these models are rankdependence and comonotonicity. It has been suggested in the literature that these concepts are technical tools that have no intuitive or empirical content. This paper describes such contents. As
An Index Of Loss Aversion
 Journal of Economic Theory
, 2000
"... Under prospect theory, three components influence the risk attitude of a decision maker: the utility function, the probability weighting function, and loss aversion. Loss aversion reflects the observed behavior of decision makers' being more sensitive to losses than to gains, resulting in a utility ..."
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Cited by 23 (2 self)
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Under prospect theory, three components influence the risk attitude of a decision maker: the utility function, the probability weighting function, and loss aversion. Loss aversion reflects the observed behavior of decision makers' being more sensitive to losses than to gains, resulting in a utility function that is steeper for losses than for gains. Much of the empirically observed risk aversion is due to loss aversion. This paper proposes an index of loss aversion. It also demonstrates how the degree of loss aversion of two decision makers can be compared and how its influences on comparative risk aversion can be examined. The main result characterizes comparative loss aversion in terms of preferences.
New paradoxes of risky decision making
 Psychological Review
"... During the last 25 years, prospect theory and its successor, cumulative prospect theory, replaced expected utility as the dominant descriptive theories of risky decision making. Although these models account for the original Allais paradoxes, 11 new paradoxes show where prospect theories lead to sel ..."
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Cited by 23 (11 self)
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During the last 25 years, prospect theory and its successor, cumulative prospect theory, replaced expected utility as the dominant descriptive theories of risky decision making. Although these models account for the original Allais paradoxes, 11 new paradoxes show where prospect theories lead to selfcontradiction or systematic false predictions. The new findings are consistent with and, in several cases, were predicted in advance by simple “configural weight ” models in which probabilityconsequence branches are weighted by a function that depends on branch probability and ranks of consequences on discrete branches. Although they have some similarities to later models called “rankdependent utility, ” configural weight models do not satisfy coalescing, the assumption that branches leading to the same consequence can be combined by adding their probabilities. Nor do they satisfy cancellation, the “independence ” assumption that branches common to both alternatives can be removed. The transfer of attention exchange model, with parameters estimated from previous data, correctly predicts results with all 11 new paradoxes. Apparently, people do not frame choices as prospects but, instead, as trees with branches.
An Axiomatization of Cumulative Prospect Theory for Decision under Risk
 Journal of Risk and Uncertainty
, 1999
"... Cumulative prospect theory was introduced by Tversky and Kahneman so as to combine the empirical realism of their original prospect theory with the theoretical advantages of Quiggin’s rankdependent utility. Preference axiomatizations were provided in several papers. All those axiomatizations, howev ..."
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Cited by 18 (2 self)
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Cumulative prospect theory was introduced by Tversky and Kahneman so as to combine the empirical realism of their original prospect theory with the theoretical advantages of Quiggin’s rankdependent utility. Preference axiomatizations were provided in several papers. All those axiomatizations, however, only consider decision under uncertainty. No axiomatization has been provided as yet for decision under risk, i.e., the case in which given probabilities are transformed. Providing the latter is the purpose of this note. The resulting axiomatization is considerably simpler than that for uncertainty.
Qualityadjusted lifeyears (QALY) utility models under expected utility and rank dependent utility assumptions
 Journal of Mathematical Psychology
, 1999
"... Qualityadjusted life years (QALY) utility models are multiattribute utility models of survival duration and health quality. This paper formulates six classes of QALY utility models and axiomatizes these models under expected utility (EU) and rankdependent utility (RDU) assumptions. The QALY models ..."
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Cited by 12 (1 self)
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Qualityadjusted life years (QALY) utility models are multiattribute utility models of survival duration and health quality. This paper formulates six classes of QALY utility models and axiomatizes these models under expected utility (EU) and rankdependent utility (RDU) assumptions. The QALY models investigated in this paper include the standard linear QALY model, the power and exponential multiplicative models, and the general multiplicative model. Emphasis is placed on a preference assumption, the zero condition, that greatly simplifies the axiomatizations under EU and RDU assumptions. The RDU axiomatizations of QALY models are generally similar to their EU counterparts, but in some cases, they require modification because linearity in probability is no longer assumed, and rank dependence introduces asymmetries between the domains of betterthandeath health states and worsethandeath health states. 1999 Academic Press This paper concerns the foundations of qualityadjusted life years (QALY) utility models. QALY utility models are widely used in the expected utility analysis of health decisions because they provide an outcome measure that integrates the duration and quality of survival. Before discussing the specifics of these models, it will be helpful to motivate the discussion by describing the role played by QALY utility models in health decision analysis (Weinstein et al., 1980; Sox, Blatt,
On the Composition of Risk Preference and Belief
, 2004
"... Prospect theory assumes nonadditive decision weights for preferences over risky gambles. Such decision weights generalize additive probabilities. This article proposes a decomposition of decision weights into a component reflecting risk attitude and a new component depending on belief. The decomposi ..."
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Cited by 9 (3 self)
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Prospect theory assumes nonadditive decision weights for preferences over risky gambles. Such decision weights generalize additive probabilities. This article proposes a decomposition of decision weights into a component reflecting risk attitude and a new component depending on belief. The decomposition is based on an observable preference condition and does not use other empirical primitives such as statements of judged probabilities. The preference condition is confirmed by most of the experimental findings in the literature. The implied properties of the belief component suggest that, besides the oftenstudied ambiguity aversion (a motivational factor reflecting a general aversion to unknown probabilities), perceptual and cognitive limitations play a role: It is harder to distinguish among various levels of likelihood, and to process them differently, when probabilities are unknown than when they are known.
Temporal Resolution of Uncertainty and Recursive NonExpected Utility Models
 ECONOMETRICA
, 2000
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A note on Wakker's Cardinal Coordinate Independence
 MATHEMATICAL SOCIAL SCIENCES
, 2004
"... Peter P. Wakker has forcefully shown the importance for decision theory of a condition that he called "Cardinal Coordinate Independence". Indeed, when the outcome space is rich, he proved that, for continuous weak orders, this condition fully characterizes the Subjective Expected Utility model with ..."
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Cited by 8 (4 self)
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Peter P. Wakker has forcefully shown the importance for decision theory of a condition that he called "Cardinal Coordinate Independence". Indeed, when the outcome space is rich, he proved that, for continuous weak orders, this condition fully characterizes the Subjective Expected Utility model with a finite number of states. He has furthermore explored in depth how this condition can be weakened in order to arrive at characterizations of Choquet Expected Utility and Cumulative Prospect Theory. This note studies the consequences of this condition in the absence of any transitivity assumption. Complete preference relations satisfying Cardinal Coordinate Independence are shown to be already rather wellbehaved. Under a suitable necessary order denseness assumption, they may always be represented using a simple numerical model.
Dominance Violations in Judged Prices of Two and Threeoutcome Gambles
"... The dominance principle states that one should prefer the option with consequences that are at least as good as those of other options for any state of the world. When applied to judged prices of gambles, the dominance principle requires that increasing one or more outcomes of a gamble should increa ..."
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Cited by 3 (0 self)
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The dominance principle states that one should prefer the option with consequences that are at least as good as those of other options for any state of the world. When applied to judged prices of gambles, the dominance principle requires that increasing one or more outcomes of a gamble should increase the judged price of the gamble, with everything else held constant. Previous research has uncovered systematic violations of the dominance principle: people assign higher prices to a gamble with a large probability of winning an amount, Y, otherwise zero, than they do to a superior gamble with the same chance of winning Y, otherwise winning a small amount, X! These violations can be explained by a configuralweight theory in which twooutcome gambles are represented with two sets of decision weights; one set for outcomes having values of zero and another set for lowervalued outcomes that have nonzero values. The present paper investigates whether dominance violations are limited to twooutcome gambles. Results show that people violate the dominance principle with threeoutcome gambles even with financial incentives. Furthermore, results could be predicted from the configuralweight theory. The data do not support the view that configural weighting is caused by a shift in strategy that would apply only to twooutcome gambles. KEY WORDS dominance principle; twooutcome gambles; threeoutcome gambles; configuralweight theory
A Tool for Qualitatively Testing, Quantitatively Measuring, and Normatively Justifying Expected Utility
"... This paper introduces a new preference condition that can be used to justify (or criticize) expected utility. It is based on a method for deriving "comparisons of tradeoffs" from ordinal preferences. Our condition simplifies earlier conditions thus making them more accessible to nonspecialists, and ..."
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Cited by 2 (1 self)
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This paper introduces a new preference condition that can be used to justify (or criticize) expected utility. It is based on a method for deriving "comparisons of tradeoffs" from ordinal preferences. Our condition simplifies earlier conditions thus making them more accessible to nonspecialists, and at the same time provides more general and powerful tools to specialists. It is more closely related to empirical methods for measuring utility than conditions published before. The condition thus provides a unifying tool for quantitatively measuring, qualitatively testing, and normatively justifying expected utility. Although, in a formal sense, our method reveals risky utility, we hope that it can nevertheless appeal to a concept of cardinal utility prior t...