In:
Management Science, Institute for Operations Research and the Management Sciences (INFORMS), Vol. 64, No. 6 ( 2018-06), p. 2812-2832
Abstract:
First, this paper introduces and axiomatizes range-dependent utility as a new conceptual framework for decision making under risk. It is a simple and well-defined generalization of expected utility theory in which utility depends on the range of lottery outcomes. Second, a special case of this framework is proposed for prediction. It is based on applying a single utility function (decision utility) to every normalized lottery range. The resultant decision utility model predicts well-known expected utility paradoxes without recourse to probability weighting. Necessary and sufficient conditions for the model to satisfy monotonicity with respect to first-order stochastic dominance are identified. The typical decision utility function, which is confirmed by both experimental data and normative considerations, is S shaped. This paper was accepted by Manel Baucells, decision analysis.
Type of Medium:
Online Resource
ISSN:
0025-1909
,
1526-5501
DOI:
10.1287/mnsc.2017.2744
Language:
English
Publisher:
Institute for Operations Research and the Management Sciences (INFORMS)
Publication Date:
2018
detail.hit.zdb_id:
206345-1
detail.hit.zdb_id:
2023019-9
SSG:
3,2
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