New model measures certainty effect in decision making under risk.
A new model of decision-making under risk was developed to measure the certainty effect, similar to measuring risk aversion. The model, called expected utility with certainty preference, is equivalent to expected utility in most cases. The study defines and analyzes standard concepts in risk aversion within this framework, showing that the measurement of certainty effect is as powerful as measuring risk aversion. The model is compared to other non-expected utility theories.