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“Luce problem” and discontinuity of Prelec’s function at p = 1

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  • Harin, Alexander

Abstract

This short paper is devoted to two items: 1) An analysis of Prelec’s weighting function at the probability p = 1 is highlighted (this analysis was performed by R. Duncan Luce in two articles with Ragnar Steingrimsson and János Aczél and here is referred to as the “Luce problem”). 2) The question of possible discontinuity of Prelec’s weighting function at p = 1 is specially considered, as a manifestation of importance of the “Luce problem.”

Suggested Citation

  • Harin, Alexander, 2015. "“Luce problem” and discontinuity of Prelec’s function at p = 1," MPRA Paper 63672, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:63672
    as

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    File URL: https://mpra.ub.uni-muenchen.de/63672/1/MPRA_paper_63672.pdf
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    References listed on IDEAS

    as
    1. Alexander Harin, 2012. "Data Dispersion in Economics(II) - Inevitability and Consequences of Restrictions," Review of Economics & Finance, Better Advances Press, Canada, vol. 2, pages 24-36, November.
    2. 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..
    3. Diecidue, Enrico & Schmidt, Ulrich & Zank, Horst, 2009. "Parametric weighting functions," Journal of Economic Theory, Elsevier, vol. 144(3), pages 1102-1118, May.
    4. Alexander Harin, 2005. "A Rational Irrational Man," Public Economics 0511005, University Library of Munich, Germany.
    5. Alexander Harin, 2012. "Data Dispersion in Economics (I) - Possibility of Restrictions," Review of Economics & Finance, Better Advances Press, Canada, vol. 2, pages 59-70, August.
    6. Yoram Halevy, 2008. "Strotz Meets Allais: Diminishing Impatience and the Certainty Effect," American Economic Review, American Economic Association, vol. 98(3), pages 1145-1162, June.
    7. Starmer, Chris & Sugden, Robert, 1991. "Does the Random-Lottery Incentive System Elicit True Preferences? An Experimental Investigation," American Economic Review, American Economic Association, vol. 81(4), pages 971-978, September.
    8. Drazen Prelec, 1998. "The Probability Weighting Function," Econometrica, Econometric Society, vol. 66(3), pages 497-528, May.
    9. Harin, Alexander, 2007. "Principle of uncertain future and utility," MPRA Paper 1959, University Library of Munich, Germany.
    10. Mohammed Abdellaoui & Olivier l’Haridon & Horst Zank, 2009. "Separating Curvature and Elevation: A Parametric Weighting Function," Economics Discussion Paper Series 0901, Economics, The University of Manchester.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Luce; Prelec; utility; prospect theory; probability weighting function;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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