Journal Article

A Simple Model of Cumulative Prospect Theory


  • Zank
  • H.
  • Schmidt
  • U.
Publication Date

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.

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JEL Classification

Key Words

  • comonotonic sure thing principle
  • cumulative prospect theory
  • linear utility
  • loss aversion