Problems of utility and prospect theories. Certainty effect near certainty

Alexander Harin

MPRA Paper from University Library of Munich, Germany

Abstract: A need for experiments on the certainty effect near the certainty (near the probability p = 1) is stated in this paper. The need supported by the Aczél–Luce question whether Prelec’s weighting function W(p) is equal to 1 at p = 1, by the purely mathematical restrictions and the “certain–uncertain” inconsistency of the random–lottery incentive experiments. The results of the experiments of the certainty effect near the certainty show that Prelec’s (probability) weighting function can be discontinuous at the probability p = 1. There is a need for new experiments at probabilities which are closer to p=1, e.g., at probabilities p=.99 and p=.999.

Keywords: utility; prospect theory; certainty effect; experiment; Prelec; probability weighting function (search for similar items in EconPapers)
JEL-codes: C1 C9 C91 D8 D81 (search for similar items in EconPapers)
Date: 2014-12-30
New Economics Papers: this item is included in nep-exp and nep-upt
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