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Essays in nonexpected utility theory: behavioral approaches to risk

Author: Cillo, Alessandra INSEAD Area: Decision SciencesPublisher: Fontainebleau : INSEAD, 2007.Language: EnglishDescription: 75 p. ; 30 cm.Type of document: INSEAD ThesisThesis Note: For the degree of Ph.D. in management, INSEAD, January 2007Bibliography/Index: Includes bibliographical referencesAbstract: A classic theory of decision making under risk and uncertainty, expected utility (EU) constitutes a key building block in economic theory. EU theory can be interpreted normatively - as a model of how people ought to choose. However, EU lacks descriptive validity, that is, it fails to capture several behavioral anomalies. Nonexpected utility ( NEU) models have been developed to capture behavioral anomalies by relaxing some assumptions of rational choice underlying EU. However, two issues might arise in NEU theories. First, the descriptive validity of a model does not necessarily imply that is has appealing psychological motivation. Second, descriptive theories - no matter how ell they capture EU anomalies - need quantitative measurement for predictive and prescriptive purposes. Third, in most of cases, individuals do not have ready made preferences. Therefore, it is important to provide criteria to help them make a choice in a risky context. These three issues represent the main driving force of the dissertation. List(s) this item appears in: Ph.D. Thesis
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For the degree of Ph.D. in management, INSEAD, January 2007

Includes bibliographical references

A classic theory of decision making under risk and uncertainty, expected utility (EU) constitutes a key building block in economic theory. EU theory can be interpreted normatively - as a model of how people ought to choose. However, EU lacks descriptive validity, that is, it fails to capture several behavioral anomalies. Nonexpected utility ( NEU) models have been developed to capture behavioral anomalies by relaxing some assumptions of rational choice underlying EU.
However, two issues might arise in NEU theories. First, the descriptive validity of a model does not necessarily imply that is has appealing psychological motivation. Second, descriptive theories - no matter how ell they capture EU anomalies - need quantitative measurement for predictive and prescriptive purposes. Third, in most of cases, individuals do not have ready made preferences. Therefore, it is important to provide criteria to help them make a choice in a risky context. These three issues represent the main driving force of the dissertation.

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