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On the origin of utility, weighting, and discounting functions : how they get their shapes and how to change their shapes
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Stewart, Neil, Reimers, Stian and Harris, Adam J. L. (2015) On the origin of utility, weighting, and discounting functions : how they get their shapes and how to change their shapes. Management Science, Volume 61 (Number 3). pp. 687-705. doi:10.1287/mnsc.2013.1853 ISSN 0025-1909.
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Official URL: http://dx.doi.org/10.1287/mnsc.2013.1853
Abstract
We present a theoretical account of the origin of the shapes of utility, probability weighting, and temporal discounting functions. In an experimental test of the theory, we systematically change the shape of revealed utility, weighting, and discounting functions by manipulating the distribution of monies, probabilities, and delays in the choices used to elicit them. The data demonstrate that there is no stable mapping between attribute values and their subjective equivalents. Expected and discounted utility theories, and also their descendants such as prospect theory and hyperbolic discounting theory, simply assert stable mappings to describe choice data and offer no account of the instability we find. We explain where the shape of the mapping comes from and, in describing the mechanism by which people choose, explain why the shape depends on the distribution of gains, losses, risks, and delays in the environment.
| Item Type: | Journal Article | ||||||||||
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| Subjects: | B Philosophy. Psychology. Religion > BF Psychology H Social Sciences > HB Economic Theory |
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| Divisions: | Faculty of Science, Engineering and Medicine > Science > Psychology | ||||||||||
| Library of Congress Subject Headings (LCSH): | Utility theory -- Mathematical models, Probabilities, Risk, Delay discounting (Psychology) | ||||||||||
| Journal or Publication Title: | Management Science | ||||||||||
| Publisher: | Institute for Operations Research and the Management Sciences (INFORMS) | ||||||||||
| ISSN: | 0025-1909 | ||||||||||
| Official Date: | March 2015 | ||||||||||
| Dates: |
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| Volume: | Volume 61 | ||||||||||
| Number: | Number 3 | ||||||||||
| Number of Pages: | 19 | ||||||||||
| Page Range: | pp. 687-705 | ||||||||||
| DOI: | 10.1287/mnsc.2013.1853 | ||||||||||
| Status: | Peer Reviewed | ||||||||||
| Publication Status: | Published | ||||||||||
| Access rights to Published version: | Open Access (Creative Commons) | ||||||||||
| Date of first compliant deposit: | 28 December 2015 | ||||||||||
| Date of first compliant Open Access: | 28 December 2015 | ||||||||||
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