Aspiration Level, Probability of Success and Failure, and Expected Utility

18 Pages Posted: 8 May 2008

See all articles by Enrico Diecidue

Enrico Diecidue

INSEAD – Decision Sciences

Jeroen van de Ven

University of Amsterdam; Tinbergen Institute

Multiple version iconThere are 2 versions of this paper

Abstract

Aspiration levels are a relevant aspect of decision making. We develop a model that includes the overall probabilities of success and failure relative to the aspiration level into an expected utility representation. This turns out to be equivalent to expected utility with a discontinuous utility function. We give a behavioral foundation to the proposed model and provide conditions to determine the relative weights of the overall probabilities of success and failure. An aspiration level reinforces loss aversion, can account for simultaneous risk-averse and risk-seeking behavior, and can explain choices violating the mean-variance approach.

Suggested Citation

Diecidue, Enrico and van de Ven, Jeroen, Aspiration Level, Probability of Success and Failure, and Expected Utility. International Economic Review, Vol. 49, No. 2, pp. 683-700, May 2008, Available at SSRN: https://ssrn.com/abstract=1130544 or http://dx.doi.org/10.1111/j.1468-2354.2008.00494.x

Enrico Diecidue (Contact Author)

INSEAD – Decision Sciences ( email )

France

Jeroen Van de Ven

University of Amsterdam ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
4
Abstract Views
1,103
PlumX Metrics