Problems of utility and prospect theories. A discontinuity of Prelec’s function

Alexander Harin

MPRA Paper from University Library of Munich, Germany

Abstract: A possibility of the existence of a discontinuity of Prelec’s (probability weighting) function W(p) at the probability p = 1 is discussed. This possibility is 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 well-known experiments support this possibility as well.

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-upt
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