1. 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: 0.97 0.03 0.97  1 + 0.03  0 = 0.97

2. 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!

3. Standard Gamble Utilities, Corrected through Prospect Theory, for p =.00,...,.99. 00. 01. 02. 03. 04. 05. 06. 07. 08. 09.0.00.0000.0250.0380.0480.0570.0640.0720.0780.0850.091.1.10.0970.1020.1080.1130.1180.1230.1280.1330.1380.143.2.20.1480.1520.1570.1620.1660.1710.1760.1800.1850.189.3.30.1940.1990.2030.2080.2130.2170.2220.2270.2310.236.4.40.2410.2460.2510.2560.2610.2660.2710.2760.2810.286.5.50.2920.2970.3030.3080.3140.3200.3250.3310.3370.343.6.60.3500.3560.3630.3690.3760.3830.3900.3970.4050.412.7.70.4200.4280.4360.4450.4540.4630.4720.4810.4910.502.8.80.5120.5230.5350.5470.5600.5730.5870.6010.6170.633.9.90.6500.6690.6890.7100.7340.7600.7890.8220.8610.911 3 E.g., if p =.15 then U = 0.123

4. 0 0.2 0.4 0.6 0.8 1 0 0.20.40.60.81 U p Corrected Standard Gamble Utility Curve 4

5. U SG  U CE ( at 1 st = CE(.10), …, at 5 th = CE(.90) ) 5 th 3d3d 1 st 2 nd 4 th *** * ** * *** 0.25 0.00  0.10 0.10 0.20  0.05 0.05 0.15 * 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

6. 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. 7 EU: U(x) = p?? Is wrong!! PT: U(x) = w + (p) w + (p) + w  (1  p)

8. p w+w+ 1 1 0 1/3 Figure. The common weighting fuction w + (1/3) = 1/3; 8 = 2.25