Abstract
This study documents a model of how certainty and probability “effects” independently produce two kinds of differences between individual preferences and the expected utility model. First, the use of certainty equivalents in the measurement of preferences results in an effect similar to but more subtle than that previously demonstrated: the dependence of the utility functions on probability is intensified by an individual’s degree of risk aversion. Secondly, both the use of certainty and individual perceptions of probability combine independently to generate preferences which concord with Kahneman and Tversky in that they are not linear in probability.
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References
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© 1988 D. Reidel Publishing Company, Dordrecht, Holland
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de Neufville, R., Delquie, P. (1988). A Model of the Influence of Certainty and Probability “Effects” on the Measurement of Utility. In: Munier, B.R. (eds) Risk, Decision and Rationality. Theory and Decision Library, vol 9. Springer, Dordrecht. https://doi.org/10.1007/978-94-009-4019-2_13
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DOI: https://doi.org/10.1007/978-94-009-4019-2_13
Publisher Name: Springer, Dordrecht
Print ISBN: 978-94-010-8283-9
Online ISBN: 978-94-009-4019-2
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