Using Fuzzy Probability Weights in Cumulative Prospect Theory

Užga-Rebrovs Oļegs and Kuļešova Gaļina
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Užga-Rebrovs Oļegs: Rezekne Academy of Technologies Latvia
Kuļešova Gaļina: Riga Technical University Latvia

Information Technology and Management Science, 2016, vol. 19, issue 1, 29-33

Abstract: During the past years, a rapid growth has been seen in the descriptive approaches to decision choice. As opposed to normative expected utility theory, these approaches are based on the subjective perception of probabilities by the individuals, which takes place in real situations of risky choice. The modelling of this kind of perceptions is made on the basis of probability weighting functions. In cumulative prospect theory, which is the focus of this paper, decision prospect outcome weights are calculated using the obtained probability weights. If the value functions are constructed in the sets of positive and negative outcomes, then, based on the outcome value evaluations and outcome decision weights, generalised evaluations of prospect value are calculated, which are the basis for choosing an optimal prospect.

Keywords: Fuzzy probability weight; probability weighting function; prospect theory; utility theory (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:itmasc:v:19:y:2016:i:1:p:29-33:n:7

DOI: 10.1515/itms-2016-0007

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