A "Pseudo-Endowment" Effect, and Its Implications for Some Recent Nonexpected Utility Models

Drazen Prelec

Journal of Risk and Uncertainty, 1990, vol. 3, issue 3, 247-59

Abstract: This article describes a modification of the Allais paradox that induces preferences inconsistent with two conditions weaker than the independence axiom, namely quasi-convexity (a special case of which is the betweenness axiom), and Hypothesis II of Machina (also called fanning-out). These violations can be formally derived from prospect theory by invoking nonlinear transformation of probability into decision weight. Copyright 1990 by Kluwer Academic Publishers

Date: 1990
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