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Disappointment without prior expectation

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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.

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