The rank-dependent utility model (Quiggin 1982) has become a prominent alternative to yon Neumann Morgenstern expected utility framework when no negative payoffs are involved (see the surveys by Starmer 2000 and Schmidt 2004).
Rank-dependent utility departs from expected utility in two major assumptions.
To concisely represent the objective function of a rank-dependent utility maximizer, we define four weights as follows:
The rank-dependent utility of DM is then written as follows:
Generalized expected utility theory: The rank-dependent utility model.
(2) Quiggin's (1982) rank-dependent utility model is considered one of the prominent alternatives to von Neuman Morgenstern's (1944) expected utility.