Cumulative prospect theory ( cpt)
Introduction
Cumulative prospect theory (CPT) is a model for descriptive decisions under risk and crisis which was introduced by Amos Tversky and Daniel Kahneman in 1992 (Tversky, Kahneman, 1992). It is a further development and variant of prospect theory. The difference between this version and the original version of prospect theory is that weighting is applied to the cumulative probability distribution function, as in rank-dependent expected utility theory but not applied to the probabilities of individual outcomes
The Cumulative Functional A risky prospect f is a function that maps states of the world sS into consequences xX. Outcomes of prospects are arranged in increasing order, so that a prospect f is represented by a sequence of …show more content…
Recently, behavioral economists and cognitive psychologists have developed the popular cumulative prospect theory (CPT) to describe observed decision making behavior. In this study, an attempt is made in applying the CPT to reveal the implied seismic design preference by decision makers of bounded rationality. An approach incorporating the CPT, seismic risk assessment, and lifecycle cost analysis is used to investigate the sensitivity of the implied seismic design preferences to risk attitudes and possible people’s overreaction and unawareness in facing low probability high consequence risk. The impact of model parameters of the adopted value and weighting functions on the design preference is assessed through numerical examples. In general, the implied seismic design preference does not coincide with that dictated by minimizing the expected lifecycle cost, and the intervals of the implied preferences for sets of admissible combinations of model parameters of the value and weighting functions are relatively wide and depend on the adopted reference
Introduction
Cumulative prospect theory (CPT) is a model for descriptive decisions under risk and crisis which was introduced by Amos Tversky and Daniel Kahneman in 1992 (Tversky, Kahneman, 1992). It is a further development and variant of prospect theory. The difference between this version and the original version of prospect theory is that weighting is applied to the cumulative probability distribution function, as in rank-dependent expected utility theory but not applied to the probabilities of individual outcomes
The Cumulative Functional A risky prospect f is a function that maps states of the world sS into consequences xX. Outcomes of prospects are arranged in increasing order, so that a prospect f is represented by a sequence of …show more content…
Recently, behavioral economists and cognitive psychologists have developed the popular cumulative prospect theory (CPT) to describe observed decision making behavior. In this study, an attempt is made in applying the CPT to reveal the implied seismic design preference by decision makers of bounded rationality. An approach incorporating the CPT, seismic risk assessment, and lifecycle cost analysis is used to investigate the sensitivity of the implied seismic design preferences to risk attitudes and possible people’s overreaction and unawareness in facing low probability high consequence risk. The impact of model parameters of the adopted value and weighting functions on the design preference is assessed through numerical examples. In general, the implied seismic design preference does not coincide with that dictated by minimizing the expected lifecycle cost, and the intervals of the implied preferences for sets of admissible combinations of model parameters of the value and weighting functions are relatively wide and depend on the adopted reference