The bipolar Choquet integral representation

Salvatore Greco, Fabio Rindone

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Abstract

Cumulative Prospect Theory is the modern version of Prospect Theory and it is nowadays considered a valid alternative to the classical Expected Utility Theory. Cumulative Prospect theory implies Gain-Loss Separability, i.e., the separate evaluation of losses and gains within a mixed gamble. Recently, some authors have questioned this assumption of the theory, proposing new paradoxes where the Gain-Loss Separability is violated. We present a generalization of Cumulative Prospect Theory which does not imply Gain-Loss Separability and is able to explain the cited paradoxes. On the other hand, the new model, which we call the bipolar Cumulative Prospect Theory, genuinely generalizes the original Prospect Theory of Kahneman and Tversky, preserving the main features of the theory.We present also a characterization of the bipolar Choquet Integral with respect to a bi-capacity in a discrete setting.
Original languageEnglish
Pages (from-to)1-29
JournalTheory and Decision
Volume77
Issue number1
Early online date2 Aug 2013
DOIs
Publication statusPublished - 1 Jun 2014

Keywords

  • Cumulative Prospect Theory
  • Gains-Loss Separability
  • bi- Weighting Function
  • Bipolar Choquet Integral

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