Proposing a normative basis for the s-shaped value function
pp. 109-118
in: Mohammed Abdellaoui, John D. Hey (eds), Advances in decision making under risk and uncertainty, Berlin, Springer, 2008Abstract
The S-shaped value function is pervasive in its occurrence in preference tasks and prospect theory is based on the view that all preference tasks are comprehensively captured by an S-shaped value function which is concave in gains and convex for losses. In this work, we propose a normative basis for the ubiquitous S-shaped value function of Kahneman and Tversky's prospect theory (1979, 1992). We argue that it is best accommodated within the paradigmatic context of evolutionary theory. Proceeding from this paradigm, we show that the S-shaped value or utility function must necessarily result from rational actions by the decision agent.