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Advances in Prospect Theory: Cumulative Representation of Uncertainty (1992)
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| Venue: | JOURNAL OF RISK AND UNCERTAINTY, 5:297-323 (1992) |
| Citations: | 1599 - 12 self |
BibTeX
@MISC{Tversky92advancesin,
author = {Amos Tversky and Daniel Kahneman},
title = {Advances in Prospect Theory: Cumulative Representation of Uncertainty},
year = {1992}
}
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Abstract
We develop a new version of prospect theory that employs cumulative rather than separable decision weights and extends the theory in several respects. This version, called cumulative prospect theory, applies to uncertain as well as to risky prospects with any number of outcomes, and it allows different weighting functions for gains and for losses. Two principles, diminishing sensitivity and loss aversion, are invoked to explain the characteristic curvature of the value function and the weighting functions. A review of the experimental evidence and the results of a new experiment confirm a distinctive fourfold pattern of risk attitudes: risk aversion for gains and risk seeking for losses of high probability; risk seeking for gains and risk aversion for losses of low probability.
Keyphrases
prospect theory cumulative representation risk aversion characteristic curvature weighting function separable decision weight distinctive fourfold pattern cumulative prospect theory new version experimental evidence low probability new experiment confirm several respect loss aversion risky prospect high probability value function risk attitude
