Resource title

Disappointment without prior expectation

Resource image

image for OpenScout resource :: Disappointment without prior expectation

Resource description

Disappointment theory is premised on the central idea that an individual forms an expectation about a risk alternative and is liable to experience disappointment if the outcome eventually obtained falls short of the expectation. The authors abandon the hypothesis of a well-defined prior expectation and start from a different assumption: disappointment feelings may arise from comparing the outcome received with any outcome that the individual failed to get, rather than a single prior expectation. This leads to a new, very general form of Disappointment model, which has behavioral appeal, explains classic behavioral deviations from Expected Utility, while retaining desirable properties such as stochastic dominance. In the case of a linear disappointment function, the authors' model is shown to be equivalent to a subjective probability transformation. The resulting weighting of probabilities depends on the entire distribution, on the rank of the outcomes, and it satisfies stochastic dominance. Thus, their model provides a clear bridge between Disappointment theory and Rank Dependent Expected Utility, for which they can exhibit the form of the probability weighting function.

Resource author

Resource publisher

Resource publish date

Resource language

en

Resource content type

application/pdf

Resource resource URL

http://flora.insead.edu/fichiersti_wp/inseadwp2005/2005-35.pdf

Resource license

Copyright INSEAD. All rights reserved