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Aspiration Level, Probability of Success and Failure, and Expected Utility

Enrico Diecidue, Jeroen van de Ven
2006 Social Science Research Network  

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Aspiration levels are a relevant aspect of decision making. We develop a model that includes the overall probabilities of success and failure relative to the aspiration level into an expected utility representation. This turns out to be equivalent to expected utility with a discontinuous utility function. We give a behavioral foundation to the proposed model and provide conditions to determine the relative weights of the overall probabilities of success and failure. An aspiration level
more » ... s loss aversion, can account for simultaneous risk-averse and risk-seeking behavior, and can explain choices violating the mean-variance approach.
doi:10.2139/ssrn.932019 fatcat:mn3s2sjaszhyrpb2lh3bhoxenq
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Enrico Diecidue, Jeroen van de Ven. "Aspiration Level, Probability of Success and Failure, and Expected Utility." Social Science Research Network (2006)