Eliciting von Neumann-Morgenstern Utilities When Probabilities are Distorted or Unknown

Eliciting von Neumann-Morgenstern Utilities When Probabilities are Distorted or Unknown

This paper proposes a new method, the (gamble-)tradeoff method, for eliciting utilities in decision under risk or uncertainty. The elicitation of utilities, to be used in the expected utility criterion, turns out to be possible even if probabilities are ambiguous or unknown. A disadvantage of the tr...

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Veröffentlicht in:Management Science. - Institute for Operations Research and the Management Sciences, 1954. - 42(1996), 8, Seite 1131-1150
1. Verfasser: Wakker, Peter (VerfasserIn)
Weitere Verfasser: Deneffe, Daniel
Format: Online-Aufsatz
Sprache:English
Veröffentlicht: 1996
Zugriff auf das übergeordnete Werk:Management Science
Schlagworte:Utility Measurement Probability Distortion Prospect Theory Decision Analysis Risk Aversion Standard Gamble Economics Social sciences Behavioral sciences Mathematics
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520 |a This paper proposes a new method, the (gamble-)tradeoff method, for eliciting utilities in decision under risk or uncertainty. The elicitation of utilities, to be used in the expected utility criterion, turns out to be possible even if probabilities are ambiguous or unknown. A disadvantage of the tradeoff method is that a few more questions usually must be asked to clients. Also, the lotteries that are needed are somewhat more complex than in the certainty-equivalent method or in the probability-equivalent method. The major advantage of the tradeoff method is its robustness against probability distortions and misconceptions, which constitute a major cause of violations of expected utility and generate inconsistencies in utility elicitation. Thus the tradeoff method retains full validity under prospect theory, rank-dependent utility, and the combination of the two, i.e., cumulative prospect theory. The tradeoff method is tested for monetary outcomes and for outcomes describing life-duration. We find higher risk aversion for life duration, but the tradeoff method elicits similar curvature of utility. Apparently the higher risk aversion for life duration is due to more pronounced deviations from expected utility. 
540 |a Copyright 1996 Institute for Operations Research and the Management Sciences 
650 4 |a Utility Measurement 
650 4 |a Probability Distortion 
650 4 |a Prospect Theory 
650 4 |a Decision Analysis 
650 4 |a Risk Aversion 
650 4 |a Standard Gamble 
650 4 |a Economics  |x Economic disciplines  |x Financial economics  |x Finance  |x Financial analysis  |x Risk management  |x Risk aversion 
650 4 |a Economics  |x Microeconomics  |x Economic utility  |x Expected utility 
650 4 |a Social sciences  |x Communications  |x Negotiation  |x Compromises  |x Tradeoffs 
650 4 |a Behavioral sciences  |x Behavioral economics  |x Prospect theory 
650 4 |a Economics  |x Microeconomics  |x Economic utility 
650 4 |a Behavioral sciences  |x Psychology  |x Cognitive psychology  |x Emotion  |x Emotional states  |x Ambivalence 
650 4 |a Behavioral sciences  |x Leisure studies  |x Recreation  |x Games  |x Gambling  |x Lotteries 
650 4 |a Economics  |x Economic disciplines  |x Financial economics  |x Finance  |x Financial management  |x Financial risk 
650 4 |a Behavioral sciences  |x Psychology  |x Cognitive psychology  |x Cognitive processes  |x Decision making  |x Decision analysis 
650 4 |a Mathematics  |x Applied mathematics  |x Statistics  |x Applied statistics  |x Inferential statistics  |x Expected values 
655 4 |a research-article 
700 1 |a Deneffe, Daniel  |e verfasserin  |4 aut 
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