Conclusion

Rank-dependent utility (RDU) theory is a model of transitive preferences over probability distributions where the representation of preferences is based upon a (generalized) utility function defined on the outcome/probability-plane. Several specific forms of the generalized utility function have been examined in the literature, all of which imply multiplicative separability in the outcome/probability space. The most general model of this kind is the anticipated utility model firstly introduced in [Quiggin 1982]. The anticipated utility model has been proved very useful in explaining much of the empirical evidence against expected utility maximizing behavior.2