A simple model of cumulative prospect theory

Ulrich Schmidt and Horst Zank

Journal of Mathematical Economics, 2009, vol. 45, issue 3-4, pages 308-319

Abstract: The present paper combines loss attitudes and linear utility by providing an axiomatic analysis of cumulative prospect theory (CPT) in the framework for decision under uncertainty. We derive a two-sided variant of Choquet expected utility (CEU) with possibly different capacities for gains and for losses, and linear utility. Naturally, utility may have a kink at the status quo, which allows for the exhibition of loss aversion. The central condition of our model is termed independence of common increments.

Keywords: Comonotonic; sure-thing; principle; Cumulative; prospect; theory; Linear; utility; Loss; aversion (search for similar items in EconPapers)
Date: 2009
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Working Paper: A Simple Model of Cumulative Prospect Theory (2002)
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Persistent link: http://EconPapers.repec.org/RePEc:eee:mateco:v:45:y:2009:i:3-4:p:308-319

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