Transforming Ordinal Riskless Utility into Cardinal Risky Utility: A Comment on Chung, Glimcher, & Tymula (2019)
Chung, Glimcher, & Tymula (2019, this journal) observed both consumers’ choices over commodity bundles and choices under risk. They assumed a cardinal riskless utility function representing consumer choices, and a cardinal risky utility function . The two were inconsistent. This note shows that the two functions can be reconciled if we assume that is ordinal. Then one utility function can accommodate both risky and riskless choices.
|Keywords||risky utility, cardinal utility, prospect theory, reflection effect|
|JEL||Laboratory, Individual Behavior (jel C91), Consumer Economics: Empirical Analysis (jel D12), Criteria for Decision-Making under Risk and Uncertainty (jel D81)|
|Journal||American Economic Journal: Microeconomics|
Wakker, P.P. (2020). Transforming Ordinal Riskless Utility into Cardinal Risky Utility: A Comment on Chung, Glimcher, & Tymula (2019). American Economic Journal: Microeconomics, in press. Retrieved from http://hdl.handle.net/1765/125367