Expected utility theory with imprecise probability perception: explaining preference reversals

• Published in: Applied economics letters Vol. 24; no. 13; pp. 906 - 910
• Main Authors: Bayrak, Oben K., Hey, John D.
• Format: Journal Article
• Language: English
• Published: London Routledge 29.07.2017; Taylor & Francis LLC
• Subjects: Alpha EU model; anomalies in expected utility theory; decision under risk; Economic analysis; Economic models; Expected utility; imprecise probability perceptions; preference reversals valuation gaps; Probability

This article presents a new model for decision-making under risk, which provides an explanation for empirically-observed preference reversals. Central to the theory is the incorporation of probability perception imprecision, which arises because of individuals' vague understanding of numerical...