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Rank-Dependent Probabilities

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  • Karni, Edi
  • Safra, Zvi

Abstract

Within the framework of expected utility theory with rank-dependent probabilities, the authors present a hypothesis concerning the shape of the probability transformation function. This hypothesis is consistent with the "preference reversals" phenomenon. In particular, it is consistent with the finding (1) that the frequency of reversals is higher when the P-bet is preferred to the corresponding $-bet than when the $-bet is preferred over the corresponding P-bet and (2) that the $-bet is chosen more frequently than the corresponding P-bet. It is also consistent with aversion to fair, symmetric risk and with the simultaneous participation in actuarially unfair lotteries and insurance. Copyright 1990 by Royal Economic Society.

Suggested Citation

  • Karni, Edi & Safra, Zvi, 1990. "Rank-Dependent Probabilities," Economic Journal, Royal Economic Society, vol. 100(401), pages 487-495, June.
    • Handle: RePEc:ecj:econjl:v:100:y:1990:i:401:p:487-95
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    Cited by:

    1. Zvi Safra & Uzi Segal, 2008. "Calibration Results for Non-Expected Utility Theories," Econometrica, Econometric Society, vol. 76(5), pages 1143-1166, September.
    2. , & , & ,, 2006. "Optimal auctions with ambiguity," Theoretical Economics, Econometric Society, vol. 1(4), pages 411-438, December.
    3. Nuno Garoupa, 1998. "Crime and punishment: Further results," Economics Working Papers 344, Department of Economics and Business, Universitat Pompeu Fabra.
    4. Segal, Uzi, 1987. "Some remarks on Quiggin's anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 8(1), pages 145-154, March.
    5. Uzi Segal, 1986. "Stochastic Dominance for Two-Stage Lotteries," UCLA Economics Working Papers 416, UCLA Department of Economics.
    6. Alaoui, Larbi, 2008. "The value of useless information," MPRA Paper 11411, University Library of Munich, Germany.
    7. Piron, Robert & Smith, L. Ray, 1995. "Testing risklove in an experimental racetrack," Journal of Economic Behavior & Organization, Elsevier, vol. 27(3), pages 465-474, August.
    8. Éric Langlais, 2010. "Les criminels aiment-ils le risque ?," Revue économique, Presses de Sciences-Po, vol. 61(2), pages 263-280.
    9. Treich, Nicolas, 2010. "The value of a statistical life under ambiguity aversion," Journal of Environmental Economics and Management, Elsevier, vol. 59(1), pages 15-26, January.
    10. Mohammed Abdellaoui & Horst Zank, 2023. "Source and rank-dependent utility," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(4), pages 949-981, May.
    11. Fershtman, Chaim & Safra, Zvi & Vincent, Daniel, 1991. "Delayed agreements and nonexpected utility," Games and Economic Behavior, Elsevier, vol. 3(4), pages 423-437, November.
    12. Demers, Fanny S. & Demers, Michel, 1994. "Prudence, demand uncertainty background risk and the law of supply : anonexpected utility approach to the firm," CEPREMAP Working Papers (Couverture Orange) 9425, CEPREMAP.
    13. Zvi Safra & Uzi Segal, 2005. "Are Universal Preferences Possible? Calibration Results for Non-Expected Utility Theories," Boston College Working Papers in Economics 633, Boston College Department of Economics.
    14. Charles-Cadogan, G., 2021. "Incoherent Preferences," CRETA Online Discussion Paper Series 69, Centre for Research in Economic Theory and its Applications CRETA.
    15. Coelho, Philip R. P. & McClure, James E., 1998. "Social context and the utility of wealth: Addressing the Markowitz challenge," Journal of Economic Behavior & Organization, Elsevier, vol. 37(3), pages 305-314, November.
    16. Maier, Johannes & Rüger, Maximilian, 2010. "Measuring Risk Aversion Model-Independently," Discussion Papers in Economics 11873, University of Munich, Department of Economics.

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