Is Cumulative Prospect Theory a Serious Alternative for the Expected Utility Paradigm?

Michal Lewandowski

MPRA Paper from University Library of Munich, Germany

Abstract: The purpose of this paper is to demonstrate that Cumulative Prospect Theory is a serious alternative for Expected Utility Theory. It does not contradict Expected Utility, but includes it as a special example. A very useful example, because simple and yet very flexible, Expected Utility proved indispensable in many areas of economic analysis. Though a special example, because it does not capture some important effects observed in real choice behavior.

Keywords: Cumulative Prospect Theory; CPT; Expected Utility Theory; prospect stochastic dominance (search for similar items in EconPapers)
JEL-codes: C91 D03 D81 (search for similar items in EconPapers)
Date: 2006-11-14
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