Ausi Expected Utility: An Anticipated Utility Theory of Relative Disappointment Aversion

Simon Grant and Atsushi Kajii

No 1994045, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: In recent years there has been a growing theoretical, experimental and empirical challenge to Expected Utility Theory, the overwhelmingly dominant paradigm for modeling decision-making under risk. However, there has been relatively little work done in providing easily parameterized alternatives for applied work. In this paper we provide an axiomatization for a representation of preferences over lotteries that is only one parameter richer than expected utility. Our model is a special case of Quiggin's Rank Dependent Expected Utility. Moreover, we show that the same restriction on this parameter is required for: risk aversion; intuitive comparative static results for a reasonably general class of economically interesting choice problems; and accommodating some of the most well-known violations of Expected Utility Theory.

Date: 1994-10-01
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Journal Article: AUSI expected utility: An anticipated utility theory of relative disappointment aversion (1998)
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