Expected subjective value theory (ESVT): A representation of decision under risk and certainty

Paul W. Glimcher and Agnieszka Tymula

Journal of Economic Behavior & Organization, 2023, vol. 207, issue C, 110-128

Abstract: We present a descriptive model of choice derived from neuroscientific models of efficient value representation in the brain. Our basic model, a special case of Expected Utility Theory, can capture a number of behaviors predicted by Prospect Theory. It achieves this with only two parameters: a time-indexed “payoff expectation” (reference point) and a free parameter we call “predisposition”. A simple extension of the model outside the domain of Expected Utility also captures the Allais Paradox. Our models shed new light on the computational origins and evolution of risk attitudes and aversion to outcomes below reward expectation (reference point). It delivers novel explanations of the endowment effect, the observed heterogeneity in probability weighting functions, and the Allais Paradox, all with fewer parameters and higher descriptive accuracy than Prospect Theory.

Keywords: Utility; Decision-making; Expectation; Neuroeconomics; Normalization model (search for similar items in EconPapers)
JEL-codes: D03 D81 D87 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Working Paper: Expected Subjective Value Theory (ESVT): A Representation of Decision Under Risk and Certainty (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:207:y:2023:i:c:p:110-128

DOI: 10.1016/j.jebo.2022.12.013

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