Compound invariance implies prospect theory for simple prospects
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Prelec_Compound invariance.pdf
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Author(s)
Bleichrodt, Han
Kothiyal, Amit
Prelec, Drazen
Wakker, Peter P.
Date Issued
May 2013
Journal
Journal of Mathematical Psychology
Publisher
Elsevier
Citation
Bleichrodt, Han, Amit Kothiyal, Drazen Prelec, and Peter P. Wakker. “Compound Invariance Implies Prospect Theory for Simple Prospects.” Journal of Mathematical Psychology 57, no. 3–4 (June 2013): 68–77.
Version
Original manuscript
Abstract
Behavioral conditions such as compound invariance for risky choice and constant decreasing relative impatience for intertemporal choice have surprising implications for the underlying decision model. They imply a multiplicative separability of outcomes and either probability or time. Hence the underlying model must be prospect theory or discounted utility on the domain of prospects with one nonzero outcome. We indicate implications for richer domains with multiple outcomes, and with both risk and time involved.
MIT Department
Massachusetts Institute of Technology. Department of Economics
Sloan School of Management
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DOI of Published Version
https://doi.org/10.1016/j.jmp.2013.04.002
