Prospect Theory for continuous distributions

Prospect Theory is a widely accepted descriptive framework to model decisions under risk. However, it is limited to situations with finitely many outcomes. Moreover, it is discontinuous, i.e., small changes in a lottery can produce large differences in its utility, contrary to experiments. In this article we present two slight modifications to Prospect Theory which can be theoretically well justified and solve these two problems. We derive in this way a simple model of Prospect Theory for continuous probability distributions that captures all the essential properties of Prospect Theory. Unlike Cumulative Prospect Theory this model has order-independent probability weighting.