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Reasons for Rank-Dependent Utility Evaluation

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  • Weber, Elke U
  • Kirsner, Britt

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

Suggested Citation

  • Weber, Elke U & Kirsner, Britt, 1997. "Reasons for Rank-Dependent Utility Evaluation," Journal of Risk and Uncertainty, Springer, vol. 14(1), pages 41-61, January.
    • Handle: RePEc:kap:jrisku:v:14:y:1997:i:1:p:41-61
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    Cited by:

    1. Laetitia Placido & Olivier L'Haridon, 2008. "An allais paradox for generalized expected utility theories?," Economics Bulletin, AccessEcon, vol. 4(19), pages 1-6.
    2. Matthew D. Rablen, 2023. "Loss Aversion, Risk Aversion, and the Shape of the Probability Weighting Function," Working Papers 2023013, The University of Sheffield, Department of Economics.
    3. Enrico Diecidue & Peter Wakker & Marcel Zeelenberg, 2007. "Eliciting decision weights by adapting de Finetti’s betting-odds method to prospect theory," Journal of Risk and Uncertainty, Springer, vol. 34(3), pages 179-199, June.
    4. Langlais, Eric, 2008. "Cognitive dissonance, risk aversion and the pretrial negotiation impasse," MPRA Paper 8844, University Library of Munich, Germany.
    5. Peter Brooks & Simon Peters & Horst Zank, 2014. "Risk behavior for gain, loss, and mixed prospects," Theory and Decision, Springer, vol. 77(2), pages 153-182, August.
    6. 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.
    7. repec:ebl:ecbull:v:4:y:2008:i:19:p:1-6 is not listed on IDEAS
    8. Erling Eide & Kristine von Simson & Steinar Strøm, 2011. "Rank-Dependent Utility, Tax Evasion, and Labor Supply," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 67(3), pages 261-281, September.
    9. Andrade, Eduardo B., 2011. "Excessive confidence in visually-based estimates," Organizational Behavior and Human Decision Processes, Elsevier, vol. 116(2), pages 252-261.
    10. Eric Langlais, 2008. "Asymmetric information, self-serving bias and the pretrial negotiation impasse," Working Papers hal-04140725, HAL.
    11. Deffains, Bruno & Langlais, Eric, 2008. "Legal Interpretative Process and Litigants’ Cognitive Biases," MPRA Paper 14370, University Library of Munich, Germany.
    12. 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.
    13. Eric Langlais, 2008. "Asymmetric information, self-serving bias and the pretrial negotiation impasse," EconomiX Working Papers 2008-30, University of Paris Nanterre, EconomiX.
    14. repec:cup:judgdm:v:3:y:2008:i::p:396-403 is not listed on IDEAS
    15. Francesco Cesarone & Massimiliano Corradini & Lorenzo Lampariello & Jessica Riccioni, 2023. "A new behavioral model for portfolio selection using the Half-Full/Half-Empty approach," Papers 2312.10749, arXiv.org.
    16. Bruno Deffains & Eric Langlais, 2009. "Legal Interpretative Process and Litigants’ Cognitive Biases," Working Papers hal-04140887, HAL.
    17. Éric Langlais, 2008. "Indemnisation des préjudices et fréquence des procès en présence d'une asymétrie d'information sur l'aversion au risque des parties," Recherches économiques de Louvain, De Boeck Université, vol. 74(2), pages 191-218.
    18. 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.
    19. Carlos Capistr¡N & Allan Timmermann, 2009. "Disagreement and Biases in Inflation Expectations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(2-3), pages 365-396, March.
    20. Brown, Gordon D. A. & Gardner, Jonathan & Oswald, Andrew J. & Qian, Jing, 2005. "Does Wage Rank Affect Employees' Wellbeing?," IZA Discussion Papers 1505, Institute of Labor Economics (IZA).
    21. 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.
    22. Peter Brooks & Horst Zank, 2005. "Loss Averse Behavior," Journal of Risk and Uncertainty, Springer, vol. 31(3), pages 301-325, December.
    23. Henry Stott, 2006. "Cumulative prospect theory's functional menagerie," Journal of Risk and Uncertainty, Springer, vol. 32(2), pages 101-130, March.
    24. P Brooks & H Zank, 2004. "Attitudes on Gain and Loss Lotteries: A Simple Experiment," Economics Discussion Paper Series 0402, Economics, The University of Manchester.
    25. Young Bin Ahn & Yoichi Tsuchiya, 2022. "Consumer’s perceived and expected inflation in Japan—irrationality or asymmetric loss?," Empirical Economics, Springer, vol. 63(3), pages 1247-1292, September.

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