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An axiomatization of cumulative prospect theory

1993; Springer Science+Business Media; Volume: 7; Issue: 2 Linguagem: Inglês

10.1007/bf01065812

1573-0476

Peter P. Wakker, Amos Tversky,

Economic and Environmental Valuation

This paper presents a method for axiomatizing a variety of models for decision making under uncertainty, including Expected Utility and Cumulative Prospect Theory. This method identifies, for each model, the situations that permit consistent inferences about the ordering of value differences. Examples of rankdependent and sign-dependent preference patterns are used to motivate the models and the “tradeoff consistency” axioms that characterize them. The major properties of the value function in Cumulative Prospect Theory—diminishing sensitivity and loss aversion—are contrasted with the principle of diminishing marginal utility that is commonly assumed in Expected Utility.