Program for Calculating the
Cumulative-Prospect-Theory Value

of Prospects with at Most Four
Outcomes

by Veronika Köbberling, reproduced here with permission of the author

The program calculates the value of prospects with no more than four outcomes under cumulative prospect theory (CPT), the theory introduced by

Tversky, Amos & Daniel Kahneman (1992), "Advances in Prospect Theory:
Cumulative Representation of Uncertainty," *Journal of Risk and Uncertainty, 5,*
297-323.

The weighting function for gains is given below: | and | The weighting function for losses is shown below: |

The value function (where loss aversion parameter is l) is as follows:

where *f(x)* and *g(x)* are defined as follows:

and |

written by Veronika Köbberling, November 2002