A theory of anticipated utility

Quiggin, John

doi:10.1016/0167-2681(82)90008-7

Cited by 2,588 publications

(1,450 citation statements)

References 17 publications

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“…A variety of functional forms for modeling probability weights w(p) have been proposed in the literature (Quiggin, 1982;Tversky and Kahneman, 1992;Prelec, 1998). We use the two-parameter specification suggested by Goldstein and Einhorn (1987) and Lattimore, Baker, and Witte (1992):…”

Section: Econometric Modelmentioning

confidence: 99%

Risk and Rationality: Uncovering Heterogeneity in Probability Distortion

2009

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It has long been recognized that there is considerable heterogeneity in individual risk taking behavior but little is known about the distribution of risk taking types. We present a parsimonious characterization of risk taking behavior by estimating a finite mixture regression model for three different experimental data sets, two Swiss and one Chinese, over a large number of real gains and losses. We find two distinct types of individuals: In all three data sets, the choices of roughly 80% of the subjects exhibit significant deviations from linear probability weighting, consistent with prospect theory. 20% of the subjects weight probabilities near linearly and behave essentially as expected value maximizers. Moreover, individuals are cleanly assigned to one type with probabilities close to unity. The reliability and robustness of our classification suggest using a mix of preference theories in applied economic modeling.

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Section: Econometric Modelmentioning

confidence: 99%

Risk and Rationality: Uncovering Heterogeneity in Probability Distortion

2009

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“…In rank dependent utility (RDU) theory (Quiggin, 1982(Quiggin, , 1993see Diecidue & Wakker, 2001 for an intuitive introduction), the independence axiom of EU theory has been relaxed. Instead of transforming probabilities into decision weights, cumulative probabilities are transformed.…”

Section: Pu(x) (See Equationmentioning

confidence: 99%

Prospect relativity: How choice options influence decision under risk.

Stewart

Chater

Stott

et al. 2003

Journal of Experimental Psychology: General

116

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In many theories of decision under risk (e.g., expected utility theory, rank dependent utility theory, and prospect theory) the utility or value of a prospect is independent of other prospects or options in the choice set. The experiments presented here show a large effect of the available options set, suggesting instead that prospects are valued relative to one another.The judged certainty equivalent is strongly influenced by the options available. Similarly, the selection of a preferred option from a set of prospects is strongly influenced by the prospects available. Alternative theories of decision under risk (e.g., the stochastic difference model, multialternative decision field theory, and range frequency theory), where prospects themselves or prospect attributes are valued relative to one another, can provide an account of these context effects.

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“…The rank dependent expected utility model (RDEU) that was originally proposed by Quiggin (1982), has also been explored by Yaari (1987), and is closely related to the models of Schmeidler (1989) and Gilboa (1987). Originally developed to explain the Allais paradox, the RDEU model allows probabilities to enter nonlinearly into an individual's objective function.…”

Section: The Rdeu Modelmentioning

confidence: 99%

“…If q(F) = F, then the RDEU is equivalent to EU. Quiggin (1982) proposed an S-shaped function that was generalized by Tversky and Kahneman (1992) to take the form…”

Section: The Rdeu Modelmentioning

confidence: 99%

Why environmental and resource economists should care about non-expected utility models

Shaw

Woodward

2008

Resource and Energy Economics

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Experimental and theoretical analysis has shown that the conventional expected utility (EU) and subjective expected utility (SEU) models, which are linear in probabilities, have serious limitations in certain situations. We argue here that these limitations are often highly relevant to the work that environmental and natural resource economists do. We discuss some of the experimental evidence and alternatives to the SEU. We consider the theory used, the problems studied, and the methods employed by resource economists. Finally, we highlight some recent work that has begun to use some of the alternatives to the EU and SEU frameworks and discuss areas where much future work is needed. #

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A theory of anticipated utility

Cited by 2,588 publications

References 17 publications

Risk and Rationality: Uncovering Heterogeneity in Probability Distortion

Risk and Rationality: Uncovering Heterogeneity in Probability Distortion

Prospect relativity: How choice options influence decision under risk.

Why environmental and resource economists should care about non-expected utility models

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