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

Posted: 25 May 2016 Last revised: 6 Jun 2019

See all articles by Agnieszka Tymula

Agnieszka Tymula

The University of Sydney - School of Economics; New York University (NYU) - Center for Neuroeconomics

Paul Glimcher

New York University (NYU) - Center for Neuroeconomics

Date Written: September 27, 2018

Abstract

We present an overview of a novel descriptive model of choice with normative foundations based on how the brain is thought to represent value. An individual’s behavior is fully described by two primitives: an individual’s reference point and a free parameter we call “predisposition”. We demonstrate the breadth of the model, showing that it captures many of the behavioral phenomena described by Prospect Theory, but unlike Prospect Theory i) accounts for individual heterogeneity in parameters, ii) employs fewer parameters than prospect theory, and iii) retains neurobiological plausibility as a causal model of the choice process. Additionally, our theory makes a series of novel predictions amenable to future testing and includes alternative explanations for the endowment effect and the probability weighting function.

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 (September 27, 2018). 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 )

Rm 370 Merewether (H04)
Sydney, NSW 2006 2008
Australia

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

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

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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