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Is Cumulative Prospect Theory a Serious Alternative for the Expected Utility Paradigm?

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  • Lewandowski, Michal

Abstract

The purpose of this paper is to demonstrate that Cumulative Prospect Theory is a serious alternative for Expected Utility Theory. It does not contradict Expected Utility, but includes it as a special example. A very useful example, because simple and yet very flexible, Expected Utility proved indispensable in many areas of economic analysis. Though a special example, because it does not capture some important effects observed in real choice behavior.

Suggested Citation

  • Lewandowski, Michal, 2006. "Is Cumulative Prospect Theory a Serious Alternative for the Expected Utility Paradigm?," MPRA Paper 43271, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:43271
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    File URL: https://mpra.ub.uni-muenchen.de/43271/1/MPRA_paper_43271.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Cumulative Prospect Theory; CPT; Expected Utility Theory; prospect stochastic dominance;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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