On the Intuition of Rank-Dependent Utility

E. Diecidue, P.P. Wakker

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Abstract

Among the most popular models for decision under risk and uncertainty are the rank-dependent models, introduced by Quiggin and Schmeidler.Central concepts in these models are rank-dependence and comonotonicity.It has been suggested in the literature that these concepts are technical tools that have no intuitive or empirical content.This paper describes such contents.As a result, rank-dependence and comonotonicity become natural concepts upon which preference conditions, empirical tests, and improvements for utility measurement can be based.Further, a new derivation of the rank-dependent models is obtained.It is not based on observable preference axioms or on empirical data, but naturally follows from the intuitive perspective assumed.We think that the popularity of the rank-dependent theories is mainly due to the natural concepts adopted in these theories.
Original languageEnglish
Place of PublicationTilburg
PublisherMicroeconomics
Number of pages41
Volume2000-74
Publication statusPublished - 2000

Publication series

NameCentER Discussion Paper
Volume2000-74

Keywords

  • rank-dependence
  • comonotonicity
  • Choquet integral
  • pessimism
  • uncertainty aversion
  • prospect theory

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    Diecidue, E., & Wakker, P. P. (2000). On the Intuition of Rank-Dependent Utility. (CentER Discussion Paper; Vol. 2000-74). Microeconomics.