Generalized Expected Utility Theory

Quiggin, John

doi:10.1007/978-94-011-2182-8

Cited by 420 publications

(98 citation statements)

References 108 publications

(219 reference statements)

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“…Each model adapts utility theory to incorporate some psychological insight based, often, on observations of people's choice behavior. Prospect theory Tversky 1979, Tversky andKahneman 1992) is perhaps the most famous, but there are many other significant theories (e.g., Birnbaum 2008, Birnbaum and Chavez 1997, Busemeyer and Townsend 1993, Edwards 1962, Loomes and Sugden 1982, Quiggin 1993, Savage 1954. In prospect theory terminology, a value function converts money into value (the analogue of utility), and a weighting function converts probability into decision weight.…”

Section: Decision Under Riskmentioning

confidence: 99%

On the Origin of Utility, Weighting, and Discounting Functions: How They Get Their Shapes and How to Change Their Shapes

Reimers²,

2015

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We present a theoretical account of the origin of the shapes of utility, probability weighting, and temporal discounting functions. In an experimental test of the theory, we systematically change the shape of revealed utility, weighting, and discounting functions by manipulating the distribution of monies, probabilities, and delays in the choices used to elicit them. The data demonstrate that there is no stable mapping between attribute values and their subjective equivalents. Expected and discounted utility theories, and also their descendants such as prospect theory and hyperbolic discounting theory, simply assert stable mappings to describe choice data and offer no account of the instability we find. We explain where the shape of the mapping comes from and, in describing the mechanism by which people choose, explain why the shape depends on the distribution of gains, losses, risks, and delays in the environment. Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2013.1853 . This paper was accepted by Yuval Rottenstreich, judgment and decision making.

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Section: Decision Under Riskmentioning

confidence: 99%

On the Origin of Utility, Weighting, and Discounting Functions: How They Get Their Shapes and How to Change Their Shapes

Reimers²,

2015

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“…As shown in The Case Against Prospect Theories in Choice section below, these alternate intuitions that might seem similar when described in words lead to very different predictions that can be tested empirically. Quiggin's (1993) RDU, Fishburn's (1991, 1995) RSDU, Tversky and Kahneman's (1992) CPT, Marley and Luce's (2001) idempotent, lower GDU, Birnbaum's (1974a) range model, his (1997) RAM, and TAX models are all members of a generic class of configural weight models in that they can account for risk aversion by the assumption that branches with lower consequences receive greater weight. In these models, configural weighting describes risk aversion apart from the nonlinear transformation from money to utility (Lopes, 1990).…”

Section: Two Theories Of Risk Aversionmentioning

confidence: 99%

“…RDU theory was proposed as a way to explain the Allais paradoxes without violating transparent dominance (Quiggin, 1982(Quiggin, , 1985(Quiggin, , 1993. CPT (Tversky & Kahneman, 1992) was considered an advance over OPT because it applied to gambles with more than two nonzero consequences, and because it removed the need for the editing rules of combination and dominance detection, which are automatically guaranteed by the representation.…”

Section: Rdu and Cptmentioning

confidence: 99%

“…Many important articles contributed to the theoretical and empirical development of these theories (Abdellaoui, 2000(Abdellaoui, , 2002Battalio, Kagel, & Jiranyakul, 1990;Bleichrodt & Luis, 2000;Camerer, 1989Camerer, , 1992Camerer, , 1998Diecidue & Wakker, 2001;Karni & Safra, 1987;Luce, 2000Luce, , 2001Luce & Fishburn, 1991Luce & Narens, 1985;Machina, 1982;Prelec, 1998;Quiggin, 1982Quiggin, , 1985Quiggin, , 1993Schmeidler, 1989;Starmer & Sugden, 1989;Tversky & Wakker, 1995;von Winterfeldt, 1997;Wakker, 1994Wakker, , 1996Wakker, , 2001Wakker, Erev, & Weber, 1994;Wu & Gonzalez, 1996, 1999Yaari, 1987). Because of these successes, CPT has been recommended as the new standard for economic analysis (Camerer, 1998;Starmer, 2000), and it was recognized in the Nobel Prize in Economics in 2002.…”

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confidence: 99%

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New paradoxes of risky decision making.

Birnbaum¹

2008

Psychological Review

343

393

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During the last 25 years, prospect theory and its successor, cumulative prospect theory, replaced expected utility as the dominant descriptive theories of risky decision making. Although these models account for the original Allais paradoxes, 11 new paradoxes show where prospect theories lead to self-contradiction or systematic false predictions. The new findings are consistent with and, in several cases, were predicted in advance by simple "configural weight" models in which probability-consequence branches are weighted by a function that depends on branch probability and ranks of consequences on discrete branches. Although they have some similarities to later models called "rank-dependent utility," configural weight models do not satisfy coalescing, the assumption that branches leading to the same consequence can be combined by adding their probabilities. Nor do they satisfy cancellation, the "independence" assumption that branches common to both alternatives can be removed. The transfer of attention exchange model, with parameters estimated from previous data, correctly predicts results with all 11 new paradoxes. Apparently, people do not frame choices as prospects but, instead, as trees with branches.

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“…Some recent books give an overview of the subject under these different points of view, as the one of Wang and Klir [12] (the Sugeno integral), Sugeno and Murofushi [11] (general), Nguyen et al [9] (decision theory), Quiggin [10] (utility theory), and Denneberg [1] (mathematics).…”

Section: Motivationsmentioning

confidence: 99%