Program for Calculating the
of Prospects with at Most Four Outcomes
The program calculates the value of prospects with no more than four outcomes under cumulative prospect theory (PT), the theory introduced by T&K:
Tversky, Amos & Daniel Kahneman (1992) "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty 5, 297-323.You can replace the outcomes, probabilities, and parameters by the ones that you want to consider. The PT value and the certainty equivalent of the prospect under consideration will be given, as well as the decision weights of the outcomes.
The weighting function for gains is: The weighting function for losses is:
The loss aversion parameter is λ .
The value function (including loss aversion) is:
with functions f(x) and g(x) as follows:
written by Veronika Köbberling, November 2002