Chapter

Rank‐Dependent Utility <sup>*</sup>

Mohammed Abdellaoui

in The Handbook of Rational and Social Choice

Published in print January 2009 | ISBN: 9780199290420
Published online May 2009 | e-ISBN: 9780191710506 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780199290420.003.0003
 Rank‐Dependent Utility *

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Rank‐dependent utility (RDu) is among the most popular generalizations of the standard model of expected utility. It takes into account the main violations of expected utility (Allais paradox, Ellsberg paradox). Furthermore, the replacement of probabilities by decision weights allows us to capture what may be called “chance attitude” in addition to attitude towards outcomes. This chapter aims to bring into focus the main violations of expected utility that opened the way to rank‐dependent utility. Then, it presents the main preference conditions behind rankdependence. The chapter concludes with a few experimental results as regards the elicitation of cumulative prospect theory, the most compelling version of Rank‐dependent utility.

Keywords: expected Utility; risk; uncertainty; rankdependence; decision weights; Choquet expected utility; cumulative prospect theory

Chapter.  8016 words.  Illustrated.

Subjects: Public Economics

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