Piecewise Continuous Cumulative Prospect Theory and Piecewise Continuous Hedonic Framing

Abstract:     
We extend the continuous Cumulative Prospect Theory by considering piecewise continuous distributions with a finite number of jump discontinuities. Such distributions always occur when outcomes depend on continuously distributed random variables and the dependency is defined by a piecewise continuous function. In addition, we expand the model with a piecewise continuous version of hedonic framing which is, until now, only available in a discrete model setting. Finally, we show how to apply the model to a broad class of piecewise continuous outcome functions.

Number of Pages in PDF File: 27

Keywords: Continuous Cumulative Prospect Theory, Continuous Hedonic Framing, Piecewise Continuous Distributions

JEL Classification: D81

working papers series