This method rejects the Ramsey-Savage approach of calculating weights, and proposes its own weighting function.
This method rejects the Ramsey-Savage approach of calculating weights, and proposes its own weighting function. This concept was introduced in a paper that improved Maurice Allais's work, by posing a set of scenarios in which people had a chance of winning week long excursions to England. This idea accounts for the phenomenon that between a number of alternatives, it is their differences that are analyzed, not their shared characteristics, which is dubbed the (*) isolation effect. One of the central tenets of this idea is an analysis of the value function's concavity, illustrating that a reduction of one percent from a 100% probability of a desirable outcome induces more risk aversion as opposed to a one percent reduction from a 10% probability. For 10 points, name this model of risk aversion accounts for more than just expected utility, introduced by Amos Tversky and Daniel Kahnemann.
This method rejects the Ramsey-Savage approach of calculating weights, and proposes its own weighting function.
{Prospect} theory