normalized_exponential_uf: The normalized exponential utility function.

In gary-au/pt: Computational models for prospect theory and other theories of risky decision making

Description

The normalized exponential utility function is given by

U(oc) = 1/alpha * (1 - exp(-alpha * oc)), if oc >= 0 and

U(oc) = -lambda/beta * (1-exp(-beta*(-oc))), if oc < 0.

U is the utility and oc is the objective consequence of a gamble outcome. lambda is the loss aversion coefficient. The Tversky & Kahneman (1992) assumption has also been made, namely

U(-oc) = -lambda * U(oc) where oc >= 0.

Usage

normalized_exponential_uf(par, oc)

Arguments

par	vector, parameters alpha, beta and lambda for the utility function.
oc	numeric, the objective consequence

References

Scholten, M., & Read, D. (2014). Prospect theory and the “forgotten" fourfold pattern of risk preferences. Journal of Risk and Uncertainty, DOI 10.1007/s11166-014-9183-2.

gary-au/pt documentation built on May 16, 2019, 5:41 p.m.