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

Puppe, Clemens

Softcover

ISBN 10: 3540542477 ISBN 13: 9783540542476

Publisher: Springer, 2008

Synopsis

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.

Edition details

• Publisher: Springer
• Publication date: 2008
• Language: English
• ISBN 10: 3540542477
• ISBN 13: 9783540542476
• Binding: Paperback
• Number of pages: 116