• Journal of Distribution Science
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• v.11 no.5
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• pp.63-76
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• 2013

Purpose - For the past several decades, behavioral economics or behavioral decision theory has undergone rapid development. This study provides a critical review of the development of behavioral economics with a focus on what are deemed to be core theories in the field. Starting from the utility function proposed by Daniel Bernoulli in the 18th century, the development history of utility functions until the emergence of the prospect theory is thoroughly reviewed. Some of the experimental results violating the traditionally assumed utility function and supporting the prospect theory value function are summarized. The most representative principles of rational choice are transitivity, independence from irrelevant alternatives (IIA), and regularity. The development of behavioral economics has been triggered by finding counter-examples to these principles. Some of the choice behaviors discussed in this study as counter-examples to the traditional theories of rational choice are the St. Petersburg paradox; the Allais paradox; gambling behavior; and the various context effects including the similarity effect, attraction effect, and the compromise effect. The Elimination-by-Aspects (EBA) model, which was proposed as an explanation for the similarity effect, is discussed in detail as well. Based on the literature review and further analysis, this study summarizes the relationship between the context effects, prospect theory, and EBA model. Research design, data, and methodology - This study provides an extensive literature review on several important theories in the field of behavioral decision theory and adds some critical comments to the theories and the relationships among them. This study first reviews the development of utility functions. Daniel Bernoulli introduced the concept of utility function to solve the St. Petersburg paradox. In the mid-20th century, Herbert Simon proposed the "satisficing" heuristic and presented a value function with a shape different from traditional utility functions. This study highlights the strengths and weaknesses of several utility functions proposed until the emergence of the prospect theory value function. Results - This study posits that prospect theory and EBA model are the two most important theories in the field of behavioral decision theory. They can explain various choice behaviors that traditional utility maximization analysis has been unable to. The application of these models to various fields is further increasing nowadays. This study explains how prospect theory and the EBA model can be used to explain the context effects. Conclusions - The traditional economic theory relies on a single variable called "utility" in explaining consumer choice. However, this study argues that, in investigating consumer choice, several other variables should also be considered. These are the similarity among alternatives, an alternative's prototypicality within the category, the dominance relationship between alternatives, and the reference point in evaluating alternatives. Due to the development of behavioral economics, we are now closer to a more complete understanding of consumer choice behavior than in the past when we had only a single tool called utility.

• Journal of Electrical Engineering and Technology
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• v.9 no.3
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• pp.803-811
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• 2014

The moment when Electrical Vehicle (EV) starts charging or discharging is one of the most important parameters in estimating the impact of EV load on the grid. In this paper, a decision-making problem of determining the start time of charging and discharging during allowed period is proposed and studied under the uncertainty of real-time price. Prospect theory is utilized in the decision-making problem of this paper for it describes a kind of decision making behaviors under uncertainty. The case study uses the parameters of Springo SGM7001EV and adopts the historical realtime locational marginal pricing (LMP) data of PJM market for scenario reduction. Prospect values are calculated for every possible start time in the allowed charging or discharging period. By comparing the calculated prospect values, the optimal decisions are obtained accordingly and the results are compared with those based on Expected Utility Theory. Results show that with different initial State-of-Charge ($SoC_0$) and different reference points, the optimal start time of charging can be the one between 12 a.m. to 3 a.m. and optimal discharging starts at 2 p.m. or 3p.m. Moreover, the decision results of Prospect Theory may differ from that of the Expected Utility Theory with the reference points changing.

• Journal of Korea Game Society
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• v.14 no.4
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• pp.37-44
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• 2014

In this paper, we propose a NPC decision making model based on Prospect Theory which tries to model real-life choice, rather than optimal decision. For this purpose, we analyse the problems of reference point setting, diminishing sensitivity and loss aversion which are known as limitations of the utility theory and then apply these characteristics into the decision making in game. Dynamic Terrain Analysis is utilized to evaluate the proposed model and experimental result shows the method have effects on inducing diverse personality and emergent behavior on NPC.

• Proceedings of the Korean Institute of Navigation and Port Research Conference
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• 2023.05a
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• pp.256-257
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• 2023

This paper aims to propose optimal method to assess and cumulate the daily profit for liner shipping to support the shipping lines in making optimal decision with the highest average daily profit. This paper not only explains the actual calculated results align with decision-makers' behavior from concepts indicated in cumulative prospect theory but also contributes to an easy-to-apply method for liner shipping network predictability in and provides optimal decision-making is helpful for shipping managers for the best effective selection of the most appropriate alternative under uncertainties.

• Journal of Korean Society of Transportation
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• v.21 no.1
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• pp.77-90
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• 2003

This paper explores the way and the extent to which drivers' route choice was influenced by uncertain information. In particular, this paper investigates the effect of qualitative information on route choice when drivers face a choice with different degrees of uncertain information. The SP survey was conducted and route choice legit models were estimated. We also applied Prospect Theory to the analysis of drivers' decision making under uncertain information. The main findings are firstly, drivers tend to prefer a route with information than(to) one without information. This indicated that providing charge information encouraged drivers to choose the routes for which information is provided in preference to those for which it is not provided. Secondly, drivers also prefer a route with a certain and precise information over one with uncertain and imprecise information. Thirdly, when the information is given as a range, the size of the range of the information influenced route choice slightly and as the range of the charge increases, the route becomes slightly less unattractive. Fourthly, when the information is given as a range, drivers' route choices are influenced more by the median value of the ranges than by the size of the overall ranges of the information. Application of Prospect Theory to the results explains the way drivers may be interpreting the choice situation and how they make a route choice in response to uncertain information. The results of this paper implicate that drivers' decision making under uncertainty seem to be very complicated and flexible, depending on the way drivers interpret the choice situation. Therefore, it is recommended to apply wider related theories to the analysis of the drivers' behaviour.

• KDI Journal of Economic Policy
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• v.35 no.1
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• pp.1-32
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• 2013

Economic sanctions and inducements are types of 'policy instruments' based on 'economic tools' to influence other international actors. Ongoing debates on sanctions and inducements have exposed drawbacks for relying on individual case studies. There are some studies in the literature that attempt theoretical analysis of sanctions and inducements, but they are mostly based on rational choice theory. In reality, however, there exist so many cases that cannot be explained by rational choice theory. These are called anomalies or exceptions. The literature introduces specific variables to interpret these anomalies and thus sacrifice the universality of the theory. From this point of view, prospect theory would present an effective tool to analyze economic sanctions and inducements. It is a behavioral economic theory that tries to model a decisions making process in reality. The theory says that people make decisions based on subjective value of losses and gains from an individual reference point, and that people evaluate these losses and gains using heuristics. Thus prospect theory could offer a different frame which has greater explanatory range without adding new variables. As a result of this study, target's losses of 'back down' towards economic sanctions loom larger when the reference point level increases, therefore, the effectiveness of sanctions decreases. However, target's losses of 'stand firm' towards economic inducements loom larger under the same condition of reference point, therefore, the effectiveness of inducements increases. The findings of the paper suggest meaningful implications to the economic policy towards North Korea.

• Journal of Digital Convergence
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• v.15 no.11
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• pp.107-112
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• 2017

This paper performed an experimental study to test the validity of the prospect theory proposed by Tversky and Kahneman as an alternative to the expected utility theory. 115 college students attended the hypothetical games to choose one of two lotteries, one is safe option while the other one is risky. The risky options were set up to have low, medium or high probability of payoffs or losses. The amount of payoffs and losses of the lotteries was either large or small. Maximum likelihood estimation of the hypothetical games have shown that in case of high probability of positive payoffs the respondents were risk averse and when the probability of positive payoffs were small the respondents were risk loving. when the possibility of loss is high they were risk loving, while the probability is of loss is low the respondents were found to be risk averse. When the probability of risky options were medium the results were significant statistically in case of only losses. The amount of positive payoff or losses does not affect the results. Overall the results of this experiments support the prospect theory more than those of Laury & Holts (2008).

• Asia Marketing Journal
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• v.18 no.3
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• pp.47-63
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• 2016

Rational choice theory holds that the alternative with largest expected utility in the choice set should always be chosen. However, it is often observed that an alternative with the largest expected utility is not always chosen while the choice task itself being avoided. Such a choice phenomenon cannot be explained by the traditional expected utility maximization principle. The current study posits shows that such a phenomenon can be attributed to the gap between the expected perceived gain (or loss) and the expected perceived value. This study mathematically analyses the relationship between the expectation of an alternative's gains or losses over the reference point and its expected value, when the perceived gains or losses follow continuous probability distributions. The proposed expected value (EV) function can explain the effects of loss aversion and uncertainty on the evaluation of an alternative based on the prospect theory value function. The proposed function reveals why the expected gain of an alternative should exceed some positive threshold in order for the alternative to be chosen. The model also explains why none of the two equally or similarly attractive options is chosen when they are presented together, but either of them is chosen when presented alone. The EV function and EG-EV curve can extract and visualize the core tenets of the prospect theory more clearly than the value function itself.

• Journal of the Korean Institute of Rural Architecture
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• v.8 no.1
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• pp.70-79
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• 2006

This study deals with analysing the growth prospect and development direction of Donghae city with two international ports. To do so, it is progressed, firstly, to examine the general discovery about port since the late nineteenth century, secondly, to unfold it's theory with Mukho and Donghae port as Donghae city development element as the central figure, thirdly, to analyse Donghae city as the important place of traffic, the location of industry and the resource base in a spatial planning side.

• Journal of the Korean Institute of Landscape Architecture
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• v.22 no.3
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• pp.13-27
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• 1994

본 논문에서는 1) 지금까지 이루어진 광장선호연구를 토대로 광장 설계시 이용될 수 있는 12가지 설계지침을 제시하며, 2) 광장선호를 진화 이론의 틀에서 분석한 사례연구를 소개하고 있다. 12가지 광장설계지침은 1970년부터 지금까지 이루어진 광장형태연구들로부터 제시되었으며, 광장 의 위치, 규모, 시각적 특질, 활동, 미기후, 경계설계, 부공간설계, 동선설계, 식재설계, 휴식공간설계, 음식, 조형물설계 등에 관련한 고려사항을 포함한 다. 광장선호를 진화이론에서 분석한 사례연구는 Appleton의 조망과 은신 이론(prospect and refuge theory)을 분석의 틀로 이용하며, 3개 광장에서 의 이용행태 관찰을 바탕으로 한다. 구체적으로 각 광장의 앉는 장소 (sitting area)가 가지고 있는 조망(prospect) 특성과 은신(refuge)특성을 분석하고 이러한 특성들이 사람들의 선택선호도(앉는 장소로서의)와 관련 성이 있는가를 살펴보고 있다. 연구결과를 보면 광장의 성격이 완전히 공 공적(public)일 경우만이 전반적인 선호행태가 조망(prospect)과 은신 (refuge) 특질과 관련되고 반공공적(semi-public)이나 사적(private)일 경우 에는 Appleton의 이론으로 선호행태 설명이 불가능함을 알 수 있다.