Resolving Inconsistencies in Utility Measurement under Risk: Tests of Generalizations of Expected Utility

Han Bleichrodt, Jose-Maria Abellan-Perpiñan (), JoséLuis Pinto and Ildefonso Mendez Martinez

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: This paper explores biases in the elicitation of utilities under risk and the contribution that generalizations of expected utility can make to the resolution of these biases. We used five methods to measure utilities under risk and found clear violations of expected utility. Of the theories studies, prospect theory was most consistent with our data. The main improvement of prospect theory over expected utility was in comparisons between a riskless and a risky prospect(riskless-risk methods). We observed no improvement over expected utility in comparisons between two risky prospects (risk-risk methods). An explanation why we found no improvement of prospect theory over expected utility in risk-risk methods may be that there was less overweighting of small probabilities in our study than has commonly been observed.

Keywords: Utility Measurement; Nonexpected Utility; Prospect Theory; Health.; Leex (search for similar items in EconPapers)
JEL-codes: D81 I10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mic
Date: Written 2005-01
View list of references

Downloads: (external link)
http://www.econ.upf.edu/docs/papers/downloads/798.pdf Whole Paper (application/pdf)

Related works:
Working Paper: Resolving Inconsistencies in Utility Measurement under Risk: Tests of Generalizations of Expected Utility (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Access Statistics for this paper

More papers in Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra
Series data maintained by ().