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Option price without expected utility

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  • Jindapon, Paan
  • Shaw, W. Douglass

Abstract

We consider the meaning of the option price, commonly acknowledged as the preferred ex ante welfare measure, in the rank-dependent expected utility (RDEU) framework. The importance of this pertains to performing benefit-cost analysis when RDEU maximizers are prevalent in society.

Suggested Citation

  • Jindapon, Paan & Shaw, W. Douglass, 2008. "Option price without expected utility," Economics Letters, Elsevier, vol. 100(3), pages 408-410, September.
    • Handle: RePEc:eee:ecolet:v:100:y:2008:i:3:p:408-410
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    References listed on IDEAS

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    1. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    2. Shaw, W. Douglass & Woodward, Richard T., 2008. "Why environmental and resource economists should care about non-expected utility models," Resource and Energy Economics, Elsevier, vol. 30(1), pages 66-89, January.
    3. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
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    5. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    6. Chris Starmer, 2000. "Developments in Non-expected Utility Theory: The Hunt for a Descriptive Theory of Choice under Risk," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 332-382, June.
    7. Graham, Daniel A, 1981. "Cost-Benefit Analysis under Uncertainty," American Economic Review, American Economic Association, vol. 71(4), pages 715-725, September.
    8. W. Henry Chiu, 1996. "Risk Aversion with State-Dependent Preferences in the Rank-Dependent Expected Utility Theory," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 21(2), pages 159-177, December.
    9. Mary Riddel & W. Shaw, 2006. "A theoretically-consistent empirical model of non-expected utility: An application to nuclear-waste transport," Journal of Risk and Uncertainty, Springer, vol. 32(2), pages 131-150, March.
    10. W Shaw & Mary Riddell & Paul Jakus, 2005. "Valuing Environmental Changes in the Presence of Risk: A Review and Discussion of Some Empirical Issues," Working Papers 2005-02, Utah State University, Department of Economics.
    11. Desvousges, William H. & Smith, V. Kerry & Fisher, Ann, 1987. "Option price estimates for water quality improvements: A contingent valuation study for the monongahela river," Journal of Environmental Economics and Management, Elsevier, vol. 14(3), pages 248-267, September.
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    Cited by:

    1. Rollins, Kimberly S. & Kobayashi, Mimako, 2010. "Embedding a Field Experiment in Contingent Valuation to Measure Context-Dependent Risk Preferences: An Application to Wildfire Risk," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61870, Agricultural and Applied Economics Association.
    2. Cai, Yongxia & Shaw, W. Douglass & Wu, Ximing, 2008. "Risk Perception and Altruistic Averting Behavior: Removing Arsenic in Drinking Water," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6149, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Nguyen, To N. & Shaw, W. Douglass & Woodward, Richard T. & Paterson, Robert & Boyle, Kevin, 2007. "An empirical study of option prices for hunting permits," Ecological Economics, Elsevier, vol. 63(2-3), pages 476-484, August.

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