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A language for the construction of preferences under uncertainty

Marco LiCalzi ()

Game Theory and Information from University Library of Munich, Germany

Abstract: This paper studies a target-based procedure to rank lotteries that is normatively and observationally equivalent to the expected utility model. In view of this equivalence, the traditional utility-based language for decision making may be substituted with an alternative target-based language. Switching language may have significant modelling consequences. To exemplify, we contrast the utility-based viewpoint of prospect theory against the target-based viewpoint and provide an explanation of Allais’ paradox based on context dependence instead of distorted probabilities.

Keywords: expected utility; prospect theory; target-based decisions; choice anomalies; benchmarking (search for similar items in EconPapers)
JEL-codes: C7 D8 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe
Date: 2005-09-05
Note: Type of Document - pdf; pages: 21. 25 pages, pdf
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