On the potential for observational equivalence in experiments on risky choice when a power value function is assumed

D. A. Peel; Jie Zhang

doi:10.1016/j.econlet.2011.12.116

On the potential for observational equivalence in experiments on risky choice when a power value function is assumed

D. A. Peel^*
, Jie Zhang

^*Corresponding author for this work

Lancaster University

Research output: Contribution to journal › Article › peer-review

Abstract

We demonstrate theoretically and illustrate the implications of assuming power utility when the true function is of the expo-power form. Empirical results can appear to be consistent with cumulative prospect theory when they are in fact generated from a Markowitz model.

Original language	English
Pages (from-to)	8-10
Number of pages	3
Journal	Economics Letters
Volume	116
Issue number	1
DOIs	https://doi.org/10.1016/j.econlet.2011.12.116
Publication status	Published - Jul 2012
Externally published	Yes

Keywords

Cumulative prospect theory
Expo-value utility function
Lotteries
Markowitz model
Power value function
Probability distortion

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10.1016/j.econlet.2011.12.116

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title = "On the potential for observational equivalence in experiments on risky choice when a power value function is assumed",

abstract = "We demonstrate theoretically and illustrate the implications of assuming power utility when the true function is of the expo-power form. Empirical results can appear to be consistent with cumulative prospect theory when they are in fact generated from a Markowitz model.",

keywords = "Cumulative prospect theory, Expo-value utility function, Lotteries, Markowitz model, Power value function, Probability distortion",

author = "Peel, \{D. A.\} and Jie Zhang",

year = "2012",

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AB - We demonstrate theoretically and illustrate the implications of assuming power utility when the true function is of the expo-power form. Empirical results can appear to be consistent with cumulative prospect theory when they are in fact generated from a Markowitz model.

KW - Cumulative prospect theory

KW - Expo-value utility function

KW - Lotteries

KW - Markowitz model

KW - Power value function

KW - Probability distortion

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DO - 10.1016/j.econlet.2011.12.116

M3 - Article

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JO - Economics Letters

JF - Economics Letters

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On the potential for observational equivalence in experiments on risky choice when a power value function is assumed

Abstract

Keywords

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