This paper provides preference foundations for parametric weighting functions under rank-dependent utility. This is achieved by decomposing the independence axiom of expected utility into separate meaningful properties. These conditions allow us to characterize rank-dependent utility with power...

The present paper combines loss attitudes and linear utility by providing an axiomatic analysis of cumulative prospect theory (CPT) in the framework for decision under uncertainty. We derive a two-sided variant of Choquet expected utility (CEU) with possibly different capacities for gains and...

In most models of (cumulative) prospect theory, reference dependence of preferences is imposed beforehand and the location of the reference point is determined exogenously. This paper presents principles that provide critical tests and foundations for prospect theory preferences without assuming...

A behavioral definition of loss aversion is proposed and its implications for original and cumulative prospect theory are analyzed. Original prospect theory is in agreement with the new loss aversion condition, and there utility is capturing all effects of loss aversion. In cumulative prospect...

This paper characterizes the conditions for strong risk aversion and second-order stochastic dominance for cumulative prospect theory. Strong risk aversion implies a convex weighting function for gains and a concave one for losses. It does not necessarily imply a concave utility function. The...

Prospect theory is currently the main descriptive theory of decision under uncertainty. It generalizes expected utility by introducing nonlinear decision weighting and loss aversion. A difficulty in the study of multiattribute utility under prospect theory is to determine when an attribute...