Cumulative prospect theory and the St. Petersburg paradox

@article{Rieger2004CumulativePT,
  title={Cumulative prospect theory and the St. Petersburg paradox},
  author={M. O. Rieger and Mei Wang},
  journal={Economic Theory},
  year={2004},
  volume={28},
  pages={665-679}
}
  • M. O. Rieger, Mei Wang
  • Published 2004
  • Mathematics
  • Economic Theory
  • Summary.We find that in cumulative prospect theory (CPT) with a concave value function in gains, a lottery with finite expected value may have infinite subjective value. This problem does not occur in expected utility theory. The paradox occurs in particular in the setting and the parameter regime studied by Tversky and Kahneman [15] and in subsequent works. We characterize situations in CPT where the problem can be resolved. In particular, we define a class of admissible probability… CONTINUE READING
    150 Citations

    Figures and Tables from this paper.

    References

    SHOWING 1-10 OF 26 REFERENCES
    Making prospect theory fit for finance
    • 79
    • PDF
    Prospect theory and the CAPM : a contradiction or coexistence?
    • 49
    • PDF
    Curvature of the Probability Weighting Function
    • 887
    • PDF
    Advances in prospect theory: Cumulative representation of uncertainty
    • 10,701
    • Highly Influential
    • PDF
    The Influence of Probability on Risky Choice: A Parametric Examination
    • 318
    • PDF
    Weighing Risk and Uncertainty
    • 887
    • PDF
    Back to the St. Petersburg Paradox?
    • 67
    • PDF