Journal ArticleDOI
Social welfare functions with a reference income
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To ensure quasi-concavity a new preference condition is proposed, which has the interpretation of aversion to income dropping below the reference income.Abstract:
A foundation of social welfare functions is considered with a given reference income (or utility): relative and absolute invariance of the underlying welfare ordering are defined to hold for societies with either all members having incomes below the reference income or all members having incomes above the reference income. These conditions, alongside standard properties of a social preference relation, provide reference income dependent extensions of traditional classes of welfare functions. Dalton’s principle of positive transfers is incorporated, under which relative invariance leads to a class of piecewise (rank-)linear welfare functions, including the class of generalized Gini social welfare functions as a special case. To ensure quasi-concavity a new preference condition is proposed, which has the interpretation of aversion to income dropping below the reference income.read more
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References
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Book ChapterDOI
Prospect theory: an analysis of decision under risk
Daniel Kahneman,Amos Tversky +1 more
TL;DR: In this paper, the authors present a critique of expected utility theory as a descriptive model of decision making under risk, and develop an alternative model, called prospect theory, in which value is assigned to gains and losses rather than to final assets and in which probabilities are replaced by decision weights.
Journal ArticleDOI
Prospect theory: analysis of decision under risk
Daniel Kahneman,Amos Tversky +1 more
Journal ArticleDOI
Advances in prospect theory: cumulative representation of uncertainty
Amos Tversky,Daniel Kahneman +1 more
TL;DR: Cumulative prospect theory as discussed by the authors applies to uncertain as well as to risky prospects with any number of outcomes, and it allows different weighting functions for gains and for losses, and two principles, diminishing sensitivity and loss aversion, are invoked to explain the characteristic curvature of the value function and the weighting function.
Book
Inequalities: Theory of Majorization and Its Applications
TL;DR: In this paper, Doubly Stochastic Matrices and Schur-Convex Functions are used to represent matrix functions in the context of matrix factorizations, compounds, direct products and M-matrices.
Journal ArticleDOI
Loss Aversion in Riskless Choice: A Reference-Dependent Model
Amos Tversky,Daniel Kahneman +1 more
TL;DR: In this article, the authors present a reference-dependent theory of consumer choice, which explains such effects by a deformation of indifference curves about the reference point, in which losses and disadvantages have greater impact on preferences than gains and advantages.