The bipolar Choquet integral representation

Salvatore Greco () and Fabio Rindone ()

MPRA Paper from University Library of Munich, Germany

Abstract: Cumulative Prospect Theory of Tversky and Kahneman (1992) is the modern version of Prospect Theory (Kahneman and Tversky (1979)) and is nowadays considered a valid alternative to the classical Expected Utility Theory. Cumulative Prospect theory implies Gain-Loss Separability, i.e. the separate evaluation of losses and gains within a mixed gamble. Recently, some authors have questioned this assumption of the theory, proposing new paradoxes where the Gain-Loss Separability is violated. We present a generalization of Cumulative Prospect Theory which does not imply Gain-Loss Separability and is able to explain the cited paradoxes. On the other hand, the new model, which we call the bipolar Cumulative Prospect Theory, genuinely generalizes the original Prospect Theory of Kahneman and Tversky (1979), preserving the main features of the theory. We present also a characterization of the bipolar Choquet Integral with respect to a bi-capacity in a discrete setting.

Keywords: Cumulative Prospect Theory; Gains-Loss Separability; bi- Weighting Function; Bipolar Choquet Integral (search for similar items in EconPapers)
JEL-codes: C60 D81 (search for similar items in EconPapers)
Date: 2011-08, Revised 2011-10-14
New Economics Papers: this item is included in nep-mic and nep-upt
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Journal Article: The bipolar Choquet integral representation (2014)
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