Flexible estimation of parametric prospect models using hierarchical bayesian methods

In this paper, we present a flexible approach to estimating parametric cumulative Prospect Theory using Hierarchical Bayesian methods. Bayesian methods allow us to include prior knowledge in estimation and heterogeneity in individual responses. The model employs a generalised parametric specification of the value function allowing each individual to be risk-seeking in low-stakes mixed prospects. In addition, it includes parameters accounting for varying levels of model noise across domains (gain, loss, and mixed) and several aspects of lottery design that can influence respondent behaviour. Our results indicate that enhancing value function flexibility leads to improved model performance. Our analysis reveals that choices within the gain domain tend to be more predictable. This implies that respondents find tasks in the gain domain cognitively less challenging in comparison to making choices within the loss and mixed domains.

• Publication year

  2025

• Venue

  Experimental Economics

• Publication date

  2025-07-31

• Fields of study

  Not labeled

• Identifiers
  DOI 10.1017/eec.2025.10012
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

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