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| Author: | Bleichrodt, H. Luis Pinto, J. L. Wakker, P. P. |
| Title: | Making Descriptive Use of Prospect Theory to Improve the Prescriptive Use of Expected Utility |
| Journal: | Management Science
2001 : NOV, VOL. 47:11, p. 1498-1514 |
| Index terms: | PROBABILITY LOSS QUANTITATIVE TECHNIQUES |
| Language: | eng |
| Abstract: | This paper proposes a quantitative modification of standard utility elicitation procedures, such as the probability and certainty equivalence methods, to correct for commonly observed violations of expected utility. Traditionally, decision analysis assumes expected utility not only for the prescriptive purpose of calculating optimal decisions but also for the descriptive purpose of eliciting utilities. However, descriptive violations of expected utility bias utility elicitations. That such biases are effective became clear when systematic discrepancies were found between different utility elicitation methods that, under expected utility, should have yielded identical utilities. The paper presents quantitative corrections for the probability and certainty equivalence methods. |
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