Range-Dependent Utility

• 成果类型: Article
• 署名作者: Kontek, Krzysztof; Lewandowski, Michal
• 署名单位: Warsaw School of Economics
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2017.2744
• 发表日期: 2018
• 页码: 2812-2832
• 关键词: range-frequency model; expected utility; Certainty equivalent; Allais paradox; probability weighting; stochastic dominance violations

摘要

First, this paper introduces and axiomatizes range-dependent utility as a new conceptual framework for decision making under risk. It is a simple and well-defined generalization of expected utility theory in which utility depends on the range of lottery outcomes. Second, a special case of this framework is proposed for prediction. It is based on applying a single utility function (decision utility) to every normalized lottery range. The resultant decision utility model predicts well-known expected utility paradoxes without recourse to probability weighting. Necessary and sufficient conditions for the model to satisfy monotonicity with respect to first-order stochastic dominance are identified. The typical decision utility function, which is confirmed by both experimental data and normative considerations, is S shaped.