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A simple derivation of Prelec’s probability weighting function
Dhami, Sanjit; al-Nowaihi, Ali - Department of Economics, Leicester University - 2005
Since Kahneman and Tversky (1979), it has been generally recognized that decision makers overweight low probabilities and underweight high probabilities. Of the several weighting functions that have been proposed, that of Prelec (1998) has the attractions that it is parsimonious, consistent with...
Persistent link: https://www.econbiz.de/10005422702
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Composite Prospect Theory: A proposal to combine ‘prospect theory’ and ‘cumulative prospect theory’
al-Nowaihi, Ali; Dhami, Sanjit - Department of Economics, Leicester University - 2010
moment. As illustrative examples, we also show that CCP allows us to resolve three paradoxes: the insurance paradox, the …
Persistent link: https://www.econbiz.de/10008559912
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The Behavioral Economics of Insurance
al-Nowaihi, Ali; Dhami, Sanjit - Department of Economics, Leicester University - 2010
certain. (3) Buy inadequate insurance for very low probability events. (4) Keeping the expected loss fixed, there is a … probability below which the take-up of insurance drops dramatically. Expected utility (EU) fails on 1-4. Existing models of rank …
Persistent link: https://www.econbiz.de/10008458599
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The behavioral economics of insurance
Al-Nowaihi, Ali; Dhami, Sanjit S. - 2010
certain. (3) Buy inadequate insurance for very low probability events. (4) Keeping the expected loss fixed, there is a … probability below which the take-up of insurance drops dramatically. Expected utility (EU) fails on 1-4. Existing models of rank …. -- Decision making under risk ; Insurance ; Composite Prelec probability weighting functions ; Composite rank dependent utility …
Persistent link: https://www.econbiz.de/10003954032
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The Utility Function Under Prospect Theory
al-Nowaihi, Ali; Bradley, Ian; Dhami, Sanjit - Department of Economics, Leicester University - 2006
Prospect theory is the main behavioral alternative to expected utility. Tversky and Kahnemann (1992) motivate the utility function for gains and losses under prospect theory by using the axiom of preference homogeneity. However, they do not provide the formal proof. We provide the relevant...
Persistent link: https://www.econbiz.de/10005561912
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On the Intuition of Rank-Dependent Utility
Diecidue, E.; Wakker, P.P. - Tilburg University, Center for Economic Research - 2000
Among the most popular models for decision under risk and uncertainty are the rank-dependent models, introduced by Quiggin and Schmeidler.Central concepts in these models are rank-dependence and comonotonicity.It has been suggested in the literature that these concepts are technical tools that...
Persistent link: https://www.econbiz.de/10011091001
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A Theory of the Gambling Effect
Diecidue, E.; Schmidt, U.; Wakker, P.P. - Tilburg University, Center for Economic Research - 2000
This paper presents a model for the "gambling effect," i.e., the effect that risky gambles are evaluated differently than riskless outcomes due to an intrinsic utility (or disutility) of gambling.The model turns out to violate stochastic dominance and therefore its primary applications will be...
Persistent link: https://www.econbiz.de/10011091725
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BOUNDED RATIONALITY AND PERFECT RATIONALITY: PSYCHOLOGY INTO ECONOMICS
Schilirò, Daniele - In: Theoretical and Practical Research in Economic Fields III (2013) 2, pp. 101-111
Mathematical algorithms often fail to identify in time when the international financial crises occur although, as the classical theory of choice would suggest, the economic agents are rational and the markets are or should be efficient and behave also rationally. This contribution tries to...
Persistent link: https://www.econbiz.de/10010604539
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Bounded rationality and perfect rationality: psychology into economics
Schilirò, Daniele - Volkswirtschaftliche Fakultät, … - 2012
Mathematical algorithms often fail to identify in time when the international financial crises occur although, as the classical theory of choice would suggest, the economic agents are rational and the markets are or should be efficient and behave also rationally. This contribution tries to...
Persistent link: https://www.econbiz.de/10011114155
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BOUNDED RATIONALITY: PSYCHOLOGY, ECONOMICS AND THE FINANCIAL CRISES
SCHILIRÒ, Daniele - In: Theoretical and Practical Research in Economic Fields IV (2013) 1, pp. 97-108
This contribution focuses on the concept of bounded rationality, highlighting the role of psychology in the economic decisions. The work analyzes Simon's approach and his notion of bounded rationality as procedural rationality. Moreover, it examines some major contributions of behavioral...
Persistent link: https://www.econbiz.de/10010898027