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Expected Utility Theory (expected + utility_theory)
Selected AbstractsNon-Monotonicity of the Tversky-Kahneman Probability-Weighting Function: A Cautionary NoteEUROPEAN FINANCIAL MANAGEMENT, Issue 3 2008Jonathan Ingersoll C91; D10; D81; G19 Abstract Cumulative Prospect Theory has gained a great deal of support as an alternative to Expected Utility Theory as it accounts for a number of anomalies in the observed behavior of economic agents. Expected Utility Theory uses a utility function and subjective or objective probabilities to compare risky prospects. Cumulative Prospect Theory alters both of these aspects. The concave utility function is replaced by a loss-averse utility function and probabilities are replaced by decision weights. The latter are determined with a weighting function applied to the cumulative probability of the outcomes. Several different probability weighting functions have been suggested. The two most popular are the original proposal of Tversky and Kahneman and the compound-invariant form proposed by Prelec. This note shows that the Tversky-Kahneman probability weighting function is not increasing for all parameter values and therefore can assign negative decision weights to some outcomes. This in turn implies that Cumulative Prospect Theory could make choices not consistent with first-order stochastic dominance. [source] Collective Action Meets Prospect Theory: An Application to Coalition Building in Chile, 1973,75POLITICAL PSYCHOLOGY, Issue 3 2004Maria Fanis Expected utility theory explains collective action as an attempt by individuals to maximize their gains. In contrast, my application of prospect theory to collective action suggests that people are motivated to participate in collective action by a fear of loss. These alternative rationalities are considered in the context of the successful cooperative effort of four economic groups in Chile during 1973,75, the first years of the Pinochet military regime. In this case, the logic of prospect theory better captures how actors made decisions about whether or not to engage in collective action. Of the four groups that did join the 1973,75 economic coalition, only one (the mineowners) appears to have maximized its net asset level, as expected utility theory predicts. All four groups seem to have been motivated to cooperate because they found themselves in the domain of losses and expected that cooperation with other, even rival, economic groups might help them recoup their recent losses. [source] Following START: Risk Acceptance and the 1991,1992 Presidential Nuclear InitiativesFOREIGN POLICY ANALYSIS, Issue 1 2008Matthew Fuhrmann In September 1991, U.S. President George H.W. Bush launched the Presidential Nuclear Initiatives (PNIs), which were unilateral measures that led to the largest reductions in the American and Soviet/Russian nuclear arsenals to date. Despite their eventual success, the United States took on significant risks in launching the PNIs. To uncover the best theoretical explanation for their onset, this article uses realism, neorealism, the bureaucratic politics model, expected utility theory, and prospect theory to generate ex ante predictions regarding nuclear arms control at the end of the Cold War. It then tests the theories' predictions against the empirical record. The results suggest that a focus on an individual decision maker,President Bush,is necessary to fully understand the PNIs and that an explanation rooted in prospect theory offers the most explanatory power. This study speaks to an important debate in discipline regarding the significance of individuals, while underscoring the value of exploring foreign policy decision making from multiple levels of analysis. It also advances the literatures on risk acceptance and prospect theory by shifting their applications away from militarized conflict and crises to diplomatic negotiations and cooperation. [source] Choquet,stieltjes integral as a tool for decision modelingINTERNATIONAL JOURNAL OF INTELLIGENT SYSTEMS, Issue 2 2008Yasuo Narukawa The usefulness of the Choquet integral for modeling decision under risk and uncertainty is shown. It is shown that some paradoxes of expected utility theory are solved using the Choquet integral. Necessary and sufficient conditions for the Choquet expected utility model for decision under uncertainty (or rank dependent utility model for decision under risk) being the same as its simplified versions are presented. © 2008 Wiley Periodicals, Inc. [source] Preferences and the Democratic PeaceINTERNATIONAL STUDIES QUARTERLY, Issue 2 2000Erik Gartzke A debate exists over whether (and to what degree) the democratic peace is explained by joint democracy or by a lack of motives for conflict between states that happen to be democratic. Gartzke (1998) applies expected utility theory to the democratic peace and shows that an index of states' preference similarity based on United Nations General Assembly roll-call votes (affinity) accounts for much of the lack of militarized interstate disputes (MIDs) between democracies. Oneal and Russett (1997b, 1998, 1999) respond by arguing that UN voting is itself a function of regime type,that democracy ,causes'affinity. Oneal and Russett seek to demonstrate their thesis by regressing affinity on democracy and other variables from a standard model of the democratic peace. I replicate results reported by Oneal and Russett and then extend the analysis in several ways. I find that the residuals from Oneal and Russett's regression of affinity remain highly significant as a predictor of the absence of MIDs. Further, significance for democracy is shown to be fragile and subject to variable construction, model specification, and the choice of estimation procedure. [source] Collective Action Meets Prospect Theory: An Application to Coalition Building in Chile, 1973,75POLITICAL PSYCHOLOGY, Issue 3 2004Maria Fanis Expected utility theory explains collective action as an attempt by individuals to maximize their gains. In contrast, my application of prospect theory to collective action suggests that people are motivated to participate in collective action by a fear of loss. These alternative rationalities are considered in the context of the successful cooperative effort of four economic groups in Chile during 1973,75, the first years of the Pinochet military regime. In this case, the logic of prospect theory better captures how actors made decisions about whether or not to engage in collective action. Of the four groups that did join the 1973,75 economic coalition, only one (the mineowners) appears to have maximized its net asset level, as expected utility theory predicts. All four groups seem to have been motivated to cooperate because they found themselves in the domain of losses and expected that cooperation with other, even rival, economic groups might help them recoup their recent losses. [source] | ||||||||||