Kothiyal,A.
Spinu,V.
Wakker,P.P.

Prospect theory is the most popular theory for predicting decisions under risk. This paper investigates its predictive power for decisions under ambiguity, using its specification through the source method. We find that it outperforms its most popular alternatives, including subjective expected utility, Choquet expected utility, and three multiple priors theories: maxmin expected utility, maxmax expected utility, and α-maxmin expected utility. Prospect theory was originally introduced for decisions under risk (Kahneman and Tversky 1979). There were two problems with the original 1979 version (original prospect theory or OPT henceforth). First, it could not handle more than two nonzero outcomes. 1 Second, it generated violations of stochastic dominance that were not descriptively realistic. These problems were resolved in 1992, when Tversky and 1 All extensions to more outcomes proposed in the literature have problems (Wakker 2010, Section 9.8).

Kothiyal, A., Spinu, V., & Wakker, P. P. (2014). An experimental test of prospect theory for predicting choice under ambiguity. Journal of Risk and Uncertainty, 48, 1-17. doi:10.1007/s11166-014-9185-0 (Full text)

Publication year	2014
Document type:	Article
Publication status:	Published
External URL:	http://dx.doi.org/10.1007/s11166-014-9185-0 View
Categories:	Expected UtilityProbability
Keywords: