This short paper shows that the Allais Paradox and the Common Ratio Effect regarded as classic examples of the violation of the Expected Utility Theory Axioms – may be easily explained by assuming that changes in wealth (i.e. gains and losses) are perceived in relative terms. The preference...

The results in this paper are relevant for the application of valuation studies in cost-benefit analysis in the presence of the willingness to pay - willingness to accept gap. We consider a consumer who makes choices based on choice preferences exhibiting reference-dependence and loss aversion....

Cumulative Prospect Theory (Kahneman, Tversky, 1979, 1992) holds that the value function is described using a power function, and is concave for gains and convex for losses. These postulates are questioned on the basis of recently reported experiments, paradoxes (gain-loss separability...

Prospect Theory (1979) and its Cumulative version (1992) argue for probability weighting to explain lottery choices. Decision Utility Theory presents an alternative solution, which makes no use of this concept. The new theory distinguishes decision and perception utility, postulates a double...

This paper studies the risk preferences of poor rural households in Malawi and compares the Holt and Laury (2002) (HL) multiple price list approach with hypothetical real-world framing and monetary incentive-compatible framing with the Tanaka, Camerer and Nguyen (2010) (TCN) monetary framing...

This paper is the first to apply prospect theory to societal health-related decision making. In particular, we allow for utility curvature, equity weighting, sign-dependence, and loss aversion in choices concerning quality of life of other people. We find substantial inequity aversion, both for...