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<p>Separable prospect theory (SPT) remains widely used, but unlike cumulative prospect theory (CPT) it lacks a full axiomatization under risk. This paper provides that characterization. The main result shows that SPT and CPT differ along two observable dimensions. First, SPT allows preferences to depend on the induced probability tree: splitting or coalescing branches may change valuation because monotonicity and continuity are imposed only within a fixed tree. Second, SPT requires rank-independent trade-off consistency, so equivalent prize trade-offs must be evaluated the same way across probabilities, ranks, and surrounding prizes. CPT reverses those commitments: it rules out tree dependence but permits rank dependence. The axiomatization therefore clarifies the behavioral content of SPT, sharpens its distinction from CPT, and identifies the empirical tests that can discriminate between the two models.</p>

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An axiomatization of separable prospect theory

  • 期刊论文

  • 出版模式：

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  • 发表日期：

    2026年7月7日

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  • Lasse Mononen

摘要

Separable prospect theory (SPT) remains widely used, but unlike cumulative prospect theory (CPT) it lacks a full axiomatization under risk. This paper provides that characterization. The main result shows that SPT and CPT differ along two observable dimensions. First, SPT allows preferences to depend on the induced probability tree: splitting or coalescing branches may change valuation because monotonicity and continuity are imposed only within a fixed tree. Second, SPT requires rank-independent trade-off consistency, so equivalent prize trade-offs must be evaluated the same way across probabilities, ranks, and surrounding prizes. CPT reverses those commitments: it rules out tree dependence but permits rank dependence. The axiomatization therefore clarifies the behavioral content of SPT, sharpens its distinction from CPT, and identifies the empirical tests that can discriminate between the two models.