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Original and cumulative prospect theory: a discussion of empirical differences
Author(s) -
Fennema Hein,
Wakker Peter
Publication year - 1997
Publication title -
journal of behavioral decision making
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.136
H-Index - 76
eISSN - 1099-0771
pISSN - 0894-3257
DOI - 10.1002/(sici)1099-0771(199703)10:1<53::aid-bdm245>3.0.co;2-1
Subject(s) - cumulative prospect theory , prospect theory , mathematical economics , econometrics , economics , microeconomics
Abstract This paper discusses differences between prospect theory and cumulative prospect theory. It shows that cumulative prospect theory is not merely a formal correction of some theoretical problems in prospect theory, but it also gives different predictions. Some experiments by Lola Lopes are re‐analyzed, and are demonstrated to favor cumulative prospect theory over prospect theory. It turns out that the mathematical form of cumulative prospect theory is well suited for modeling the psychological phenomenon of diminishing sensitivity. © 1997 John Wiley & Sons, Ltd.