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Reasons for Rank-Dependent Utility Evaluation

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  • Weber, Elke U
  • Kirsner, Britt
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    Abstract

    Three reasons for why people may evaluate utility in a rank-dependent fashion have been suggested: (a) rank-dependent weighting is a function of perceptual biases and thus not prescriptively defensible; (b) weights are (re)distributed by motivational processes that reflect stable personality characteristics of the decision maker; and (c) weights are (re)distributed as a function of the situation, allowing rank-dependent evaluation to be a rational response to an environment with asymmetric loss functions. By modifying a study by Wakker, Erev, and Weber (1994) we show that all three processes--that is, perceptual biases, individual predispositions in weighting, as well as rational adaptation to an asymmetric loss function--can be involved in rank-dependent weighting. Copyright 1997 by Kluwer Academic Publishers

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    Bibliographic Info

    Article provided by Springer in its journal Journal of Risk and Uncertainty.

    Volume (Year): 14 (1997)
    Issue (Month): 1 (January)
    Pages: 41-61

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    Handle: RePEc:kap:jrisku:v:14:y:1997:i:1:p:41-61

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    Web page: http://www.springerlink.com/link.asp?id=100299

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    Cited by:
    1. Singer, Marcos & Donoso, Patricio & Rodríguez-Sickert, Carlos, 2008. "A static model of cooperation for group-based incentive plans," International Journal of Production Economics, Elsevier, vol. 115(2), pages 492-501, October.
    2. Carlos Capistrán & Allan Timmermann, 2008. "Disagreement and Biases in Inflation Expectations," CREATES Research Papers 2008-56, School of Economics and Management, University of Aarhus.
    3. Henry Stott, 2006. "Cumulative prospect theory's functional menagerie," Journal of Risk and Uncertainty, Springer, vol. 32(2), pages 101-130, March.
    4. repec:ebl:ecbull:v:4:y:2008:i:19:p:1-6 is not listed on IDEAS
    5. Deffains, Bruno & Langlais, Eric, 2008. "Legal Interpretative Process and Litigants’ Cognitive Biases," MPRA Paper 14370, University Library of Munich, Germany.
    6. Birnbaum, Michael H. & Chavez, Alfredo, 1997. "Tests of Theories of Decision Making: Violations of Branch Independence and Distribution Independence," Organizational Behavior and Human Decision Processes, Elsevier, vol. 71(2), pages 161-194, August.
    7. K. Carrie Armel & Aurelie Beaumel & Antonio Rangel, 2008. "Biasing simple choices by manipulating relative visual attention," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 3, pages 396-403, June.
    8. P Brooks & H Zank, 2004. "Attitudes on Gain and Loss Lotteries: A Simple Experiment," The School of Economics Discussion Paper Series 0402, Economics, The University of Manchester.
    9. Birnbaum, Michael H. & Patton, Jamie N. & Lott, Melissa K., 1999. "Evidence against Rank-Dependent Utility Theories: Tests of Cumulative Independence, Interval Independence, Stochastic Dominance, and Transitivity, , , ," Organizational Behavior and Human Decision Processes, Elsevier, vol. 77(1), pages 44-83, January.
    10. Laetitia Placido & Olivier L'Haridon, 2008. "An allais paradox for generalized expected utility theories?," Economics Bulletin, AccessEcon, vol. 4(19), pages 1-6.
    11. Peter Brooks & Horst Zank, 2005. "Loss Averse Behavior," Journal of Risk and Uncertainty, Springer, vol. 31(3), pages 301-325, December.
    12. Andrade, Eduardo B., 2011. "Excessive confidence in visually-based estimates," Organizational Behavior and Human Decision Processes, Elsevier, vol. 116(2), pages 252-261.

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