The traditional theory economists and decision analysts use to evaluate decisions under uncertainty is subjective expected utility (SEU). Many real-world applications are based on SEU. However, since Kahneman and Tversky’s (1979) prospect theory paper (the most quoted paper in economics today even though it is written by two psychologists) we know that people deviate in systematic manners from SEU. Recent years have seen a wealth of new developments in decision under uncertainty. People have started modeling and measuring important deviations from SEU like probability weighting and loss aversion. Others have challenged the importance of these concepts. Another development is the focus on measuring higher order risk and ambiguity preferences like prudence and temperance. This course will give an overview of the new developments in decision under uncertainty. It treats both theories and methods to measure these theories. The course will also discuss applications, particularly in the area of medical decision making.
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