ORIGINAL AND CUMULATIVE PROSPECT-THEORY - A DISCUSSION OF EMPIRICAL DIFFERENCES

This paper discusses differences between prospect theory and cumulativ e prospect theory. It shows that cumulative prospect theory is not mer ely a formal correction of some theoretical problems in prospect theor y, but it also gives different predictions. Some experiments by Lola L opes are re-analyzed, and are demonstrated to favor cumulative prospec t theory over prospect theory. It turns out that the mathematical form of cumulative prospect theory is well suited for modeling the psychol ogical phenomenon of diminishing sensitivity. (C) 1997 by John Wiley & Sons, Ltd.