Standard-Gamble Utilities for Policy Decisions? Peter P. Wakker ( & Abdellaoui & Barrios; & Bleichrodt & Pinto) p? 1p1p  Perf. Health artificial speech.

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Standard-Gamble Utilities for Policy Decisions? Peter P. Wakker ( & Abdellaoui & Barrios; & Bleichrodt & Pinto) p? 1p1p  Perf. Health artificial speech ~ EU = U = 0.97 Analysis is based on EU!?!? Standard gamble question:   0 = 0.97

2 Common justification: EU is normative (von Neumann-Morgenstern) We agree that EU is normative. But not that this would justify SG-analysis. SG measurement is descriptive. EU is not descriptive. Prospect theory is descriptive!

Standard Gamble Utilities, Corrected through Prospect Theory, for p =.00,..., E.g., if p =.15 then U = 0.123

U p Corrected Standard Gamble Utility Curve 4

U SG  U CE ( at 1 st = CE(.10), …, at 5 th = CE(.90) ) 5 th 3d3d 1 st 2 nd 4 th *** * ** * ***   * Corrected (Prospect theory) U SG  U TO ( at 1 st = x 1, …, 5 th = x 5 ) U CE  U TO ( at 1 st = x 1, …, 5 th = x 5 ) Classical (EU) 5

FF SG(EU) CE 1/3 SG(PT) SP TO Utility functions (for mean values). 0 1/6 2/6 3/6 4/6 5/6 1 7/6 U t 0 = FF5,000 6 t 6 = FF26,068

7 EU: U(x) = p?? Is wrong!! PT: U(x) = w + (p) w + (p) + w  (1  p)

p w+w /3 Figure. The common weighting fuction w + (1/3) = 1/3; 8 = 2.25