Decision weights in anticipated utility theory. Response to Segal

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Abstract

The Anticipated Utility model permits the incorporation of decision weights into a model of choice under uncertainty which maintains the desirable properties of transitivity and preservation of dominance. In order to model choice it is necessary to impose appropriate conditions on the decision weighting function. Segal has argued that the function should be concave so that less favorable outcomes are always given more weight than the favorable ones. In this paper it is argued that outlying low probability events, whether favorable or unfavorable, are likely to be 'overweighted'. © 1987.

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Quiggin, J. (1987). Decision weights in anticipated utility theory. Response to Segal. Journal of Economic Behavior and Organization, 8(4), 641–645. https://doi.org/10.1016/0167-2681(87)90041-2

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