ASPIRATION LEVEL, PROBABILITY OF SUCCESS AND FAILURE, AND EXPECTED UTILITY

Enrico Diecidue and Jeroen van de Ven ()

International Economic Review, 2008, vol. 49, issue 2, pages 683-700

Abstract: Aspiration levels are a relevant aspect of decision making. We develop a model that includes the overall probabilities of success and failure relative to the aspiration level into an expected utility representation. This turns out to be equivalent to expected utility with a discontinuous utility function. We give a behavioral foundation to the proposed model and provide conditions to determine the relative weights of the overall probabilities of success and failure. An aspiration level reinforces loss aversion, can account for simultaneous risk-averse and risk-seeking behavior, and can explain choices violating the mean-variance approach. Copyright ©2008 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Date: 2008

Downloads: (external link)
http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-2354.2008.00494.x link to full text (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:ier:iecrev:v:49:y:2008:i:2:p:683-700

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0020-6598

Access Statistics for this article

International Economic Review is edited by Kenneth I. Wolpin

More articles in International Economic Review from Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association
Address: 160 McNeil Building, 3718 Locust Walk, Philadelphia, PA 19104-6297
Contact information at EDIRC.
Series data maintained by ().