A Note on the Utility Function Under Prospect Theory
7 Pages Posted: 12 May 2008 Last revised: 7 Jul 2008
Date Written: July 12, 2007
We show that preference-homogeneity and loss-aversion are necessary and sufficient for the value function to have the power form with identical powers for gains and losses and for the probability weighting functions for gains and losses to be identical.
Keywords: Prospect Theory, Preference homogeneity, Functional equations
JEL Classification: C60, D81
Suggested Citation: Suggested Citation