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Rank dependent expected utility theory

A generalization of expected utility theory. The alternative outcomes are ranked from lowest to highest, and the probabilities of the outcomes are transformed in a way that ensures unlikely extreme outcomes are over-weighted.

Rank dependent expected utility theory

The motivation for this construction is to obtain a pay-off function that can explain the choices observed in the Allais paradox and other similar anomalies.

Reference: Oxford Press Dictonary of Economics, 5th edt.