Extreme events and entropy: A multiple quantile utility model

This paper introduces a multiple quantile utility model of Cumulative Prospect Theory in an ambiguous setting. We show a representation theorem in which a prospect is valued by a composite value function. The composite value function is able to represent asymmetric attitude on extreme events and a rational prudence on ordinary events.

► We introduce a multiple quantile utility model of Cumulative Prospect Theory with multiple priors. ► We give a representation theorem of a prospect valued by a composite value function. ► Composite value function is an inverse cumulative function that is summation of three Choquet integrals. ► Composite value function is a fat-tailed function. ► Composite value function can be modelled by using a class of ε-contaminated probabilities.