Empirical rules of thumb for choice under uncertainty
- 127 Downloads
A substantial body of empirical evidence shows that individuals overweight extreme events and act in conflict with the expected utility theory. These findings were the primary motivation behind the development of a rank-dependent utility theory for choice under uncertainty. The purpose of this paper is to demonstrate that some simple empirical rules of thumb for choice under uncertainty are consistent with the rank-dependent utility theory.
KeywordsRank-dependent utility Maximin Maximax Mid-range
Unable to display preview. Download preview PDF.
- Barrett R. C., Pattanaik P. K. (1994) Decision making under complete uncertainty. In: Dickinson D. G., Driscoll M. J., Sen S. (eds) Risk and uncertainty in economics: Essays in honour of James L. Ford. Elgar, AldershotGoogle Scholar
- Bernoulli D. (1738) Specimen Theoriae Novae de Mensura Sortis. Econometrica 22(1954): 23–36Google Scholar
- Karni, E., & Schmeidler, D. (1991). Utility with uncertainty. In W. Hildenbrand & H. F. Sonnenschein (Eds.), Handbook of mathematical economics, Vol. 4, Chapter 33 (pp 1763–1831). North-Holland: Amsterdam.Google Scholar
- MacCrimmon K. (1968) Descriptive and normative implications of the decision theory postulates. In: Borch K., Mossin J. (eds) Risk and uncertainty. MacMillan, LondonGoogle Scholar
- Quiggin J. (1981) Risk perception and risk aversion among Australian farmers. Australian Journal of Agricultural Economics 25: 160–169Google Scholar
- Quiggin J. (1992) Generalized expected utility theory—The rank-dependent model. Kluwer Academic Press, DordrechtGoogle Scholar
- Ramsey, F. P. (1926). Truth and probability. In R. B. Braithwaite (Ed.), Foundations of mathematics and other logical essays. London: Routledge and Kegan Paul, 1931.Google Scholar
- Savage L. J. (1954) The foundations of statistics. Wiley, New YorkGoogle Scholar
- Von Neumann J., Morgenstern O. (1944) Theory of games and economic behavior. Princeton University Press, PrincetonGoogle Scholar