The two versions of prospect theory, original prospect theory (OPT; Kahneman and Tversky, 1979) and cumulative prospect theory (CPT; Tversky and Kahneman, 1992), use different composition rules to combine the value function and the probability weighting function and hence value gambles with two...

We experimentally question the assertion of Prospect Theory that people display risk attraction in choices involving high-probability losses. Indeed, our experimental participants tend to avoid fair risks for large (up to € 90), high-probability (80%) losses. Our research hinges on a novel...

How does risk tolerance vary with stake size? This important question cannot be adequately answered if framing effects, nonlinear probability weighting, and heterogeneity of preference types are neglected. We show that, contrary to gains, no coherent change in relative risk aversion is observed...

The house-money effect -people´s tendency to be more daring with easily-gotten money- is abehavioral pattern that poses questions about the external validity of experiments in economics: to what extent do people behave in experiments like they would have in a real-life situation, given that...

This paper proposes a new method, the (gamble-)tradeoff method, for eliciting utilities in decision under risk or uncertainty. The elicitation of utilities, to be used in the expected utility criterion, turns out to be possible even if probabilities are ambiguous or unknown. A disadvantage of...

Optimal taxation under income uncertainty has been extensively developed in expected utility theory, but it is still open for inseparable utility function between income and effort. As an alternative of decision-making under uncertainty, prospect theory (Kahneman and Tversky (1979), Tversky and...

When individuals choose among risky alternatives, the psychological weight attached to an outcome may not correspond to the probability of that outcome. In rank-dependent utility theories, including prospect theory, the probability weighting function permits probabilities to be weighted...