Resource title

Probability of success and aspiration level: a descriptive extension of expected utility

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Experimental studies show that aspiration levels are a relevant aspect of decision-making. The authors develop a model that takes aspiration levels into account. They include in expected utility the overall probability of reaching at least the aspiration level, i.e., the probability of success. This leads to several predictions that fit empirical evidence. Most notably, aspiration levels lead to extreme loss aversion, and can account for simultaneous risk-averse and risk-seeking behavior. They give a behavioral foundation to the proposed model.

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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/inseadwp2004/2004-99.pdf

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Copyright INSEAD. All rights reserved