A Note on the Utility Function Under Prospect Theory

7 Pages Posted: 12 May 2008 Last revised: 7 Jul 2008

See all articles by Ali al-Nowaihi

Ali al-Nowaihi

University of Leicester - Department of Economics

Sanjit Dhami

University of Leicester

Ian G. Bradley

affiliation not provided to SSRN

Date Written: July 12, 2007

Abstract

We show that preference-homogeneity and loss-aversion are necessary and sufficient for the value function to have the power form with identical powers for gains and losses and for the probability weighting functions for gains and losses to be identical.

Keywords: Prospect Theory, Preference homogeneity, Functional equations

JEL Classification: C60, D81

Suggested Citation

al-Nowaihi, Ali and Dhami, Sanjit and Bradley, Ian G., A Note on the Utility Function Under Prospect Theory (July 12, 2007). Economics Letters, Vol. 99, 2008, Available at SSRN: https://ssrn.com/abstract=1130800

Ali Al-Nowaihi

University of Leicester - Department of Economics ( email )

Department of Economics
Leicester LE1 7RH, Leicestershire LE1 7RH
United Kingdom

Sanjit Dhami (Contact Author)

University of Leicester ( email )

Department of Economics
Leicester LE1 7RH, Leicestershire LE1 7RH
United Kingdom

HOME PAGE: http://www2.le.ac.uk/departments/economics/people/sdhami

Ian G. Bradley

affiliation not provided to SSRN ( email )

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