Expected Subjective Value Theory (ESVT): A Representation of Decision Under Risk and Certainty

40 Pages Posted: 25 May 2016 Last revised: 2 Dec 2021

See all articles by Agnieszka Tymula

Agnieszka Tymula

The University of Sydney - School of Economics

Paul Glimcher

New York University (NYU) - Center for Neuroeconomics

Date Written: December 2, 2021

Abstract

We present a descriptive model of choice derived from neuroscientific models of efficient value representation in the brain. Our model, a special case of Expected Utility Theory, can capture a number of behaviors predicted by Prospect Theory. It achieves this with only two parameters: a time-indexed "payoff expectation'' (reference point) and a free parameter we call ``predisposition''. Our theory sheds new light on the computational origins and evolution of risk attitudes and aversion to outcomes below reward expectation (reference point). It delivers novel explanations of the endowment effect and the observed heterogeneity in probability weighting functions.

Keywords: utility, decision-making, reference point, neuroeconomics

JEL Classification: D03, D81, D87

Suggested Citation

Tymula, Agnieszka and Glimcher, Paul, Expected Subjective Value Theory (ESVT): A Representation of Decision Under Risk and Certainty (December 2, 2021). Available at SSRN: https://ssrn.com/abstract=2783638 or http://dx.doi.org/10.2139/ssrn.2783638

Agnieszka Tymula (Contact Author)

The University of Sydney - School of Economics ( email )

Social Sciences Building
The University of Sydney
Sydney, NSW 2006 2006
Australia

Paul Glimcher

New York University (NYU) - Center for Neuroeconomics ( email )

4 Washington Place, Room 809
New York, NY 10003
United States

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