Comparison of the Valuations of Alternatives Based on Cumulative Prospect Theory and Almost Stochastic Dominance

• Autorzy: Ewa Michalska , Renata Dudzińska-Baryła
• Języki publikacji: EN

Abstrakty

EN

There are commonly accepted and objective decision rules, which are consistent with rationality, for example stochastic dominance rules. But, as can be seen in many research studies in behavioral economics, decision makers do not always act rationally. Rules based on cumulative prospect theory or almost stochastic dominance are relatively new tools which model real choices. Both approaches take into account some behavioral factors. The aim of this paper is to check the consistency of orders of the valuations of random alternatives based on these behavioral rules. The order of the alternatives is generated by a preference relation over the decision set. In this paper, we show that the methodology for creating rankings based on total orders can be used for the preference relations considered, because they enable comparison of all the elements in a set of random alternatives. For almost second degree stochastic dominance, this is possible due to its particular properties, which stochastic dominance does not possess. (original abstract)

Słowa kluczowe

EN

Prospect theory; Stochastic processes; Decision optimization; Stochastic dominance

PL

Teoria perspektywy; Procesy stochastyczne; Optymalizacja decyzji; Dominacja stochastyczna

• Czasopismo: Operations Research and Decisions
• Rocznik: 2012
• Tom: 22
• Numer: nr 3
• Strony: 23--36

Twórcy

autor

Ewa Michalska

• University of Economics in Katowice, Poland

autor

Renata Dudzińska-Baryła

• University of Economics in Katowice, Poland

Bibliografia

• [1] DENTCHEVA D., RUSZCZYŃSKI A., Optimization with stochastic dominance constraints, SIAM Journal on Optimization, 2003, 14 (2), 548-566.
• [2] DUDZIŃSKA-BARYŁA R., KOPAŃSKA-BRÓDKA D., Maximum expected utility portfolios versus prospect theory approach, [in:] Increasing competitiveness or regional, national and international markets development, Proceedings of the 25th International Conference on Mathematical Methods in Economics 2007, Technical University of Ostrava, Ostrava, 2007, electronic document on CD.
• [3] FRENCH S., Decision Theory. An introduction to the mathematics of rationality, Ellis Horwood Limited, 1993.
• [4] HANOCH G., LEVY H., The efficiency analysis of choices involving risk, Review of Economic Studies, 1969, 36 (3), 335-346.
• [5] KAHNEMAN D., TVERSKY A., Prospect Theory: An Analysis of Decision Under Risk, Econometrica, 1979, 47, 263-291.
• [6] KOPAŃSKA-BRÓDKA D., Optymalne decyzje inwestycyjne, Wydawnictwo Akademii Ekonomicznej w Katowicach, Katowice, 1999.
• [7] LESHNO M., LEVY H., Preferred by "all" and preferred by "most" decision makers: Almost stochastic dominance, Management Science, 2002, 48 (8), 1074-1085.
• [8] LEVY H., Stochastic dominance and expected utility: survey and analysis, Management Science, 1992, 38 (4), 555-593.
• [9] LEVY H., LESHNO M., LEIBOVITCH B., Economically relevant preferences for all observed epsilon, Annals of Operations Research, 2010, 176, 153-178.
• [10] LEVY H., WIENER Z., Prospect theory and utility theory: temporary versus permanent attitude towards risk, 2002, http://pluto.mscc.huji.ac.il/~mswiener/research/PTandUT.pdf
• [11] MARKOWITZ H., Portfolio selection, Journal of Finance, 1952, 7 (1), 77-91.
• [12] MICHALSKA E., Dominacje stochastyczne a teoria perspektyw, [in:] J. Siedlecki, P. Peternek (Eds.), Współczesne tendencje rozwojowe badań operacyjnych, Prace Naukowe nr 108, Wydawnictwo Uniwersytetu Ekonomicznego we Wrocławiu, Wrocław, 2010, 167-176.
• [13] TVERSKY A., KAHNEMAN D., Advances in prospect theory: cumulative representation of uncertainty, Journal of Risk and Uncertainty, 1992, 5, 297-323.

Identyfikatory

DOI

10.5277/ord120302