Disappointment Models: an axiomatic approach

Thierry Chauveau () and Nicolas Nalpas ()
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Thierry Chauveau: Centre d'Economie de la Sorbonne, https://centredeconomiesorbonne.cnrs.fr
Nicolas Nalpas: Toulouse Business School

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: In this paper, a fully choice-based theory of disappointment is developed. It encompasses, as particular cases, EU theory, Gul's theory of disappointment (1991) and the models of Loomes and Sugden (1986). According to the new theory, the risk premium of a random prospect is the sum of two premiums: a concavity premium that is nothing but the usual Arrow-Pratt premium and a second premium that may be identified to expected disappointment. The corresponding representing functional belongs to the class of lottery-dependent utility models (Becker and Sarin 1987) since disappointment is the deficit between the utility of the realized outcome and its expected value. However, unlike the lottery-dependent approach, the theory is choice-based and its axioms are experimentally testable

Keywords: Axiomatization; disappointment aversion; random prospect; risk premium; expected utility (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2010-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:10102

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