| Author: | Wakker, P.P. Zank, H. |
| Title: | A simple preference foundation of cumulative prospect theory with power utility |
| Journal: | European Economic Review
2002 : AUG, VOL. 46:7, p. 1253-1271 |
| Index terms: | PREFERENCES UTILITY FUNCTIONS |
| Freeterms: | CUMULATIVE PROSPECT THEORY |
| Language: | eng |
| Abstract: | Most empirical studies of rank-dependent utility and cumulative prospect theory have assumed power utility functions, both for gains and for losses. As it turns out, a remarkably simple preference foundation is possible for such models: tail independence (a weakening of comonotonic independence which underlies all rank-dependent models) together with constant proportional risk aversion suffice, in the presence of common assumptions (weak ordering, continuityn and first stochastic dominance), to imply these models. |
SCIMA