ABSTRACT
Anomalieshaveplayedabigpartintheanalysisofdecisionmakingunder risk.Bothexpectedutilityandprospecttheorieswerebornoutofanomaliesexhibitedbyactualdecision-makingbehavior.Sincethesameindividual canusebothexpectedutilityandprospectapproachesatdifferenttimes, itseemsthereshouldbeameansofunitingthetwo.Thischapterfocuses onnonlineardynamicalsystems(NDS),speci‡callyacatastrophemodel, tohelpsuggestan“out-of-the-box”lineofsolutiontowardintegration.We useacuspmodeltocreateavaluesurfacewhosecontroldimensionsare involvementandgainsversuslosses.Byincluding“involvement”asavariable,theimportanceoftheindividual’spsychologicalstateisincluded,andit providesarationaleforhowdecisionmakers’changesfromexpectedutility
CONTENTS
Expected Utility and Prospect Theory ............................................................. 321 Catastrophe Theory as a Potential Integrator of PT, CPT, and EUT ............ 325
A Cusp Model ................................................................................................. 325 Model Dynamics: Low Involvement ...................................................... 327 Model Dynamics: Moderate Involvement ............................................. 328 Model Dynamics: High Involvement ..................................................... 328 Empirical Estimation of the Model ......................................................... 329
The Data and Sample ..................................................................................... 329 Operationalization of the Variables ........................................................330
Results ...................................................................................................................334 Discussion ............................................................................................................335