Additive Utility in Prospect Theory

Prospect theory is currently the main descriptive theory of decision under uncertainty. It generalizes expected utility by introducing nonlinear decision weighting and loss aversion. A difficulty in the study of multiattribute utility under prospect theory is to determine when an attribute yields a gain or a loss. One possibility, adopted in the theoretical literature on multiattribute utility under prospect theory, is to assume that a decision maker determines whether the complete outcome is a gain or a loss. In this holistic evaluation, decision weighting and loss aversion are general and attribute-independent. Another possibility, more common in the empirical literature, is to assume that a decision maker has a reference point for each attribute. We give preference foundations for this attribute-specific evaluation where decision weighting and loss aversion are depending on the attributes.

• 저널Management Science · 55(5) · 863–873
• 토픽Decision-Making and Behavioral Economics · General Decision Sciences
• DOI10.1287/mnsc.1080.0978
• 저자Han Bleichrodt, Ulrich Schmidt, Horst Zank