Expected utility with threshold disappointment sensitivity

Edward Honda

Economics Letters, 2022, vol. 213, issue C

Abstract: We axiomatize a representation for preferences over lotteries. In the model, an agent is a standard expected utility maximizer satisfying risk neutrality when the probability of disappointing prizes are sufficiently low, but becomes sensitive and places extra weight on such prizes when the probability is too large. Such a decision maker may exhibit violations of Independence. The model can also be consistent with a type of behavior observed in the Allais Paradox.

Keywords: Expected utility; Independence; Lottery (search for similar items in EconPapers)
JEL-codes: D01 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:213:y:2022:i:c:s0165176522000441

DOI: 10.1016/j.econlet.2022.110350

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