An axiomatization of cumulative prospect theory
October 1993
Article
volume 7, issue 2 pp 147-175.
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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.
Keywords
- prospect theory
- risk aversion
- rank-dependence
- sign-dependence
- comonotonicity
- diminishing marginal utility
Automatically Extracted Terms
- prospect
- state
- value
- function
- outcome
- utility
- preference
- condition
- representation
- value function
- theory
- theorem
- prospect theory
- sign-comonotonic
- wakker
- additive
- lemma
- decision
- consistency
- difference
