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

41 Pages Posted: 25 May 2016 Last revised: 20 Oct 2020

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: August 11, 2020

Abstract

We present a novel descriptive model of choice that achieves an efficient representation anchored to how the brain represents value. An individual's behavior is fully described by two primitives: an individual's "reward expectation'' 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 through a novel reformulation of its primitives. The model accounts for individual heterogeneity in behavior, employs fewer parameters than Prospect Theory, and retains neurobiological plausibility as a causal model of the choice process. Our theory makes a series of novel behavioral predictions amenable to future testing and includes novel explanations of the endowment effect and the observed heterogeneity in the 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 (August 11, 2020). 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)
The University of Sydney
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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