Journal Article
A Simple Model of Cumulative Prospect Theory
Journal of Mathematical Economics
Authors
Publication Date
JEL Classification
D81
Key Words
The present paper combines loss attitudes and linear utility by providing an axiomatic analysis of cumulative prospect theory in the framework for decision under uncertainty. We derive a two-sided variant of Choquet expected utility with possibly different capacities for gains and for losses, and linear utility. Naturally, utility may have a kink at the status quo, which allows for the exhibition of loss aversion. The central condition of our model is termed independence of common increments.
