Expansion And Revision Of The Prospect Theory Model

Dicision-Making under risk or uncertaity is a very pop issue of study during recent several centuries in the field of economics and management, and thereinto Prospect Theory is a very important descriptive model about decision-making under risk.This paper is a further study about Prospect Theory, and the purpose is to modify and extend it. Firstly, this paper simply introudces the development course of decision-making theory, then has a literature reviwe and a brief comment about PT. Secondly this paper introduces the PT and CPT in detail, including several kernelly content such as value funciton, weighting function, reference point, and then expounds the limitation of PT. After that, this paper makes further discussion respectively about value function, weighting functio, elictation method of value function and weighting function, determination of risk attitude when there exist rivalry between value function and weighting function.In order to eliminate the influence which is imposed on the shape of value function by the personal wealth level, according to the conclusion of psychology experiment, the study about value function constructs the relative code through incoporating the mental account into code, and form the new decision-making value function, the result is that the capable of explanation of the new decision-making value function has been inproved. The study about weighting function is splited into two parts; one is descusion about sensitivity descending of weighting function, this paper think that the probability 0.5 also is a special point in aspect of sensitivity descending and gives some advice about shape of weighting function based on it. In order to let PT catch decision-maker's preference of time, another part is to incorporate the factor of time into the weighting function; the new model which includes factor of time is extended toGonzalez and Wu's form of weighting function. Lastly elicitation and decision of risk attitude are discussed; based on the introduce of eclitation method this paper develops a small system to test personal value function and weighting function so that the person can kown what characteristic his value function has and what the distributing characteristic of his weighting function is, and can make use of these information to guide decision-making and make decision-making more rational, furthermore, the determination of risk attitude is discussed when the value function is opposed to the weighting function, this paper finds that risk attitude isn't determined solely by value function or weighting function, and is determined by common action of two functions.