Random Expected Utility and Certainty Equivalents: Mimicry of Probability Weighting Functions

Nathaniel Wilcox

MPRA Paper from University Library of Munich, Germany

Abstract: For simple prospects of the kind routinely used for certainty equivalent elicitation, random expected utility preferences imply a conditional expectation function that can mimic deterministic rank dependent preferences. That is, an agent with random expected utility preferences can have mean certainty equivalents that look exactly like rank dependent probability weighting functions of the inverse-s shape discussed by Quiggin (1982) and later advocated by Tversky and Kahneman (1992) and other scholars. It seems that certainty equivalents cannot nonparametrically identify preferences, at least not in every relevant sense, since their conditional expectation depends on assumptions concerning the source and nature of their variability.

Keywords: "Random Expected Utility"; "Certainty Equivalents"; "Money Equivalents"; "Probability Weighting"; "Probability Weighting Function"; "Weighting Function" (search for similar items in EconPapers)
JEL-codes: C13 C91 D81 (search for similar items in EconPapers)
Date: 2016-08-11
New Economics Papers: this item is included in nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://mpra.ub.uni-muenchen.de/73173/1/MPRA_paper_73068.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/75327/4/MPRA_paper_75327.pdf revised version (application/pdf)

Related works:
Journal Article: Random expected utility and certainty equivalents: mimicry of probability weighting functions (2017)
Working Paper: Random Expected Utility and Certainty Equivalents: Mimicry of Probability Weighting Functions (2017)
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