New Economics Papers
on Neuroeconomics
Issue of 2009‒08‒08
three papers chosen by

  1. On Mental Transformations By Kontek, Krzysztof
  2. Lottery valuation using the aspiration / relative utility function By Krzysztof Kontek
  3. Television Viewing, Satisfaction and Happiness: Facts and Fiction By Marco Gui; Luca Stanca

  1. By: Kontek, Krzysztof
    Abstract: The paper presents an alternative interpretation of the experimental data published by Kahneman and Tversky in their 1992 study "Advances in Prospect Theory”, which describes the Cumulative version of their Prospect Theory from 1979. It was assumed that, apart from the operations made during the initial stage of problem resolution, which Prospect Theory defines as Editing (here generalized as Mental Adaptation), other mental transformations such as Prospect Scaling (resulting from Focused Attention) and Logarithmic Perception of Financial Stimuli should be considered when analyzing the experimental data. This led to the design of an explicit, simple and symmetric solution without the use of the probability weighting function. The double S-type function obtained (the aspiration function) resembles the utility curve specified by the Markowitz hypothesis (1952) and substitutes the fourfold pattern of risk attitudes introduced by Cumulative Prospect Theory. The results presented constitute a basis for negating Prospect Theory as a theory which correctly describes how decisions are made under conditions of risk and may signal a return to a description of people’s behavior that only relies on the utility-like function.
    Keywords: Prospect/Cumulative Prospect Theory; Markowitz Utility Hypothesis; Utility & Aspiration Functions; Mental Processes; Adaptation & Attention Focus
    JEL: D81 D01 C91
    Date: 2009–03–25
  2. By: Krzysztof Kontek (Artal Investments)
    Abstract: The paper presents a method for lottery valuation using the relative utility function. This function was presented by Kontek (2009) as “the aspiration function” and resembles the utility curve proposed by Markowitz (1952A). The paper discusses lotteries with discrete and continuous outcome distributions as well as lotteries with positive, negative and mixed outcomes providing analytical formulas for certainty equivalents in each case. The solution is similar to the Expected Utility Theory approach and does not use the probability weighting function – one of the key elements of Prospect Theory. Solutions to several classical behavioral problems, including the Allais paradox, are presented, demonstrating that the method can be used for valuing lotteries even in more complex cases of outcomes described by a combination of Beta distributions. The paper provides strong arguments against Prospect Theory as a model for describing human behavior and lays the foundations for Relative Utility Theory – a new theory of decision making under conditions of risk.
    Keywords: Lottery Valuation, Expected Utility Theory, Markowitz Hypothesis, Prospect / Cumulative Prospect Theory, Aspiration / Relative Utility Function
    Date: 2009–07–25
  3. By: Marco Gui; Luca Stanca
    Abstract: Despite the increasing consumption of new media, watching television remains the most important leisure activity worldwide. Research on audience reactions has demostrated that there are major contradictions between television consumption and the satisfaction obtained from this activity. Similar findings have also emerged in the relationship between TV consumption and overall well-being. This paper argues that television viewing can provide a major example where consumption choices do not maximize satisfaction. We review the evidence on the welfare effects of TV consumption choices, focusing on two complementary dimensions: consumption satisfaction and overall well-being Within each of these two dimensions, we consider both absolute and relative over-consumption, referring to quantity and content of television viewing, respectively. We find that research in different social sciences provides evidence of overconsumption in television viewing. The relevance of these findings for consumption of new media is discussed in the conclusions.
    Keywords: satisfaction, rationality, media consumption, television
    JEL: D12 D91 I31 J22
    Date: 2009–07

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NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.