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Cumulative Prospect Theory Version with Fuzzy Values of Outcome Estimates

Author

Listed:
  • Oleg Uzhga-Rebrov

    (Rezekne Academy of Technologies, LV-4601 Rezekne, Latvia)

  • Peter Grabusts

    (Rezekne Academy of Technologies, LV-4601 Rezekne, Latvia)

Abstract

Choosing solutions under risk and uncertainty requires the consideration of several factors. One of the main factors in choosing a solution is modeling the decision maker’s attitude to risk. The expected utility theory was the first approach that allowed to correctly model various nuances of the attitude to risk. Further research in this area has led to the emergence of even more effective approaches to solving this problem. Currently, the most developed theory of choice with respect to decisions under risk conditions is the cumulative prospect theory. This paper presents the development history of various extensions of the original expected utility theory, and the analysis of the main properties of the cumulative prospect theory. The main result of this work is a fuzzy version of the prospect theory, which allows handling fuzzy values of the decisions (prospects). The paper presents the theoretical foundations of the proposed version, an illustrative practical example, and conclusions based on the results obtained.

Suggested Citation

  • Oleg Uzhga-Rebrov & Peter Grabusts, 2021. "Cumulative Prospect Theory Version with Fuzzy Values of Outcome Estimates," Risks, MDPI, vol. 9(4), pages 1-16, April.
    • Handle: RePEc:gam:jrisks:v:9:y:2021:i:4:p:72-:d:535487
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    References listed on IDEAS

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    Cited by:

    1. Tatiana Yu. Kudryavtseva & Angi E. Skhvediani & Maiia S. Leukhina & Alexandra O. Schneider, 2023. "A Fuzzy Model for Personnel Risk Analysis: Case of Russian-Finnish Export-Import Operations of Small and Medium Enterprises," Journal of Applied Economic Research, Graduate School of Economics and Management, Ural Federal University, vol. 22(3), pages 683-709.

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