RANK-DEPENDENT AND SIGN-DEPENDENT LINEAR UTILITY-MODELS FOR BINARY GAMBLES

Binary SEU, prospect theory, and rank-dependent utility are generalized to event weights that depend on the event and on whether or not its consequence is preferred to the status quo and to the alternative consequence. The special cases are characterized, and the representation is axiomatized qualitatively. Assuming utility is additive over joint receipt of gambles, several topics are investigated: differences among buying and selling prices and choice indifference; differences between judged and choice indifferences; a reason people may buy both lotteries and insurance; and the form of utility for money, namely, power functions on either side of the status quo. © 1991.