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Expected Subjective Value Theory (ESVT): A Representation of Decision Under Risk and Certainty

Paul W. Glimcher and Agnieszka A. Tymula

No 2016-08, Working Papers from University of Sydney, School of Economics

Abstract: We present a descriptive model of choice with normative foundations based on how the brain is thought to represent value. An individual’s behavior is fully described by two primitives: an individual’s expectation and one free parameter we call “predisposition”. The model captures the same apparent preference phenomena illustrated by Prospect Theory but unlike Prospect Theory accounts for individual heterogeneity in parameters, employs far fewer parameters than full prospect theory, and retains neurobiological plausibility as a causal model of the choice process. Additionally, our theory makes a series of novel predictions amenable to future testing and includes an alternative explanation for endowment effect..

Keywords: Utility; decision-making; reference point; neuroeconomics (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe and nep-upt
Date: 2016-05, Revised 2017-01
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