Journal of Risk and Uncertainty

, Volume 7, Issue 2, pp 147–175

An axiomatization of cumulative prospect theory

  • Peter Wakker
  • Amos Tversky
Article

Abstract

This paper presents a method for axiomatizing a variety of models for decision making under uncertainty, including Expected Utility and Cumulative Prospect Theory. This method identifies, for each model, the situations that permit consistent inferences about the ordering of value differences. Examples of rankdependent and sign-dependent preference patterns are used to motivate the models and the “tradeoff consistency” axioms that characterize them. The major properties of the value function in Cumulative Prospect Theory—diminishing sensitivity and loss aversion—are contrasted with the principle of diminishing marginal utility that is commonly assumed in Expected Utility.

Key words

prospect theory rank-dependence sign-dependence comonotonicity risk aversion diminishing marginal utility 

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Copyright information

© Kluwer Academic Publishers 1993

Authors and Affiliations

  • Peter Wakker
    • 1
  • Amos Tversky
    • 2
  1. 1.Medical Decision Making UnitUniversity of LeidenLeidenThe Netherlands
  2. 2.Department of PsychologyStanford UniversityStanfordUSA

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