Subjectively weighted utility and the Allais Paradox
Organizational Behavior and Human PerformancePublished 1 August 1979
Uday S. Karmarkar
Citations110
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Abstract
The "Allais Paradox" is often cited as an example of the limited descriptive ability of the Expected Utility model. It is shown here that the Allais Paradox does not induce a contradiction in the Subjectively Weighted Utility (SWU) model proposed elsewhere as a descriptive extension of the expected utility framework. This approach is compared with the CE and Prospect theories of decision making in which a "subcertainty" property explains the Allais Paradox. The related issues of independence of outcomes and the aggregation of outcomes are also discussed briefly.
Keywords
Decision SciencesEconomics, Econometrics and Finance
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