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Distorted Probabilities and Choice under Risk: (363 Lecture Notes in Economics and Mathematical Systems)

Distorted Probabilities and Choice under Risk: (363 Lecture Notes in Economics and Mathematical Systems)


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About the Book

This book provides a systematic, formal treatment of a recently proposed extension of the expected utility model of choice under risk: the so-called rank-dependent utility model. In this approach the representation of preferences is based upon a (generalized) utility function defined on the outcome/probability-plane. The main purpose of the book is to demonstrate the flexibility of this model with respect to its explanatory power. This is achieved by analyzing a certain subclass of the rank-dependent utility approach which incorporates the notion of price-dependent distortions of probabilities. This particular approach captures an optimistic point of view towards gambling (as can often be observed), whilst being compatible with a suitably formulated concept of risk aversion. The resulting model is used to explain some of the observed behavioral patterns as the Allais-paradox and the behavior described by the Friedman-Savage hypothesis.

Table of Contents:
1 Axiomatic Utility Theory under Risk.- 1.1 Historical Overview.- 1.2 The Axiomatic Basis of Expected Utility Theory.- 1.3 The Empirical Evidence against the Independence Axiom.- 1.4 Non-Linear Utility Theory under Risk.- 2 A Rank-Dependent Utility Model with Prize-Dependent Distortion of Probabilities.- 2.1 Rank-Dependent Utility Theory Reconsidered.- 2.2 Homogeneity on Elementary Lotteries.- 2.3 Further Evidence for Prize-Dependent Distortions of Probabilities.- 2.4 A Characterization Theorem.- 2.5 Rank-Dependent Utility Theory and Relative Utility.- 2.6 A Generalized Model.- 3 Risk Aversion.- 3.1 Risk Aversion in the General Rank-Dependent Utility Model.- 3.2 Risk Aversion and Homogeneity.- 3.3 Decreasing Risk Aversion.- 3.4 The Friedman-Savage Hypothesis.- Conclusion.- References.


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Product Details
  • ISBN-13: 9783540542476
  • Publisher: Springer-Verlag Berlin and Heidelberg GmbH & Co. KG
  • Publisher Imprint: Springer-Verlag Berlin and Heidelberg GmbH & Co. K
  • Height: 242 mm
  • No of Pages: 100
  • Returnable: N
  • Width: 170 mm
  • ISBN-10: 3540542477
  • Publisher Date: 10 Jul 1991
  • Binding: Paperback
  • Language: English
  • Returnable: N
  • Series Title: 363 Lecture Notes in Economics and Mathematical Systems


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