Abstract
This paper deals with a descriptive model to account for various paradoxes (e.g. Allais paradox) which violate the von Neumann-Morgenstern expected utility theory. Extending the prospect theory of Kahneman-Tversky we propose a “measurable value function under risk” which is a two-variable function of outcome and probability. The descriptive model proposed in this paper could properly account for Allais paradox (certainty effect), reference effect, and the phenomena of insurance and gambling. If we eliminated the risky situations from our model, we could obtain the conventional model of measurable value function under certainty as a special case.
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References
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© 1987 Springer-Verlag Berlin Heidelberg
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Tamura, H., Mori, Y., Nakamura, Y. (1987). On a Measurable Value Function Under Risk — A Descriptive Model of Preferences Resolving the Expected Utility Paradoxes. In: Sawaragi, Y., Inoue, K., Nakayama, H. (eds) Toward Interactive and Intelligent Decision Support Systems. Lecture Notes in Economics and Mathematical Systems, vol 286. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-46609-0_23
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DOI: https://doi.org/10.1007/978-3-642-46609-0_23
Publisher Name: Springer, Berlin, Heidelberg
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