Additive Utility in Prospect Theory

Han Bleichrodt (), Ulrich Schmidt and Horst Zank ()
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Han Bleichrodt: Erasmus School of Economics, Erasmus University, 3000 DR Rotterdam, The Netherlands
Horst Zank: Economics, School of Social Sciences, University of Manchester, Manchester M13 9PL, United Kingdom

Management Science, 2009, vol. 55, issue 5, pages 863-873

Abstract: Prospect theory is currently the main descriptive theory of decision under uncertainty. It generalizes expected utility by introducing nonlinear decision weighting and loss aversion. A difficulty in the study of multiattribute utility under prospect theory is to determine when an attribute yields a gain or a loss. One possibility, adopted in the theoretical literature on multiattribute utility under prospect theory, is to assume that a decision maker determines whether the complete outcome is a gain or a loss. In this holistic evaluation, decision weighting and loss aversion are general and attribute-independent. Another possibility, more common in the empirical literature, is to assume that a decision maker has a reference point for each attribute. We give preference foundations for this attribute-specific evaluation where decision weighting and loss aversion are depending on the attributes.

Keywords: additive utility; prospect theory; decision weighting; loss aversion (search for similar items in EconPapers)
Date: 2009
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Working Paper: Additive utility in prospect theory (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:inm:ormnsc:v:55:y:2009:i:5:p:863-873

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