Prospect Theory and Limit Lines

In: Risk analysis: an international journal, Band 3, Heft 3, S. 181-188

Abstract

Risk acceptance criteria in the form of limit lines are investigated in the context of prospect theory. This theory departs from utility theory in several respects, an important one being the use of weights other than probabilities in the evaluation of the expected impact of uncertain outcomes. Hypothetical functions reflecting certain attitudes toward consequences and rare events are developed and combined to produce several limit lines.