power_uf: The power utility function.

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

Description

The power utility function is given by

U(oc) = oc^alpha, if oc >= 0 and

U(oc) = -lambda * (-oc)^beta, 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

power_uf(par, oc)

Arguments

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

References

p. 309 Tversky, A., & Kahneman, D. (1992). Advances in prospect theory: Cumulative representation of uncertainty. Journal of Risk and Uncertainty, 5(4), 297-323.

p. 466 Eqn. 2, 469, Birnbaum, M. H. (2008). New paradoxes of risky decision making. Psychological Review, 115(2), 463-501.

p. 1336 Wakker, P. P. (2008). Explaining the characteristics of the power (CRRA) utility family. Health Economics, 17(12), 1329-1344.

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