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Lottery Decisions and Probability Weighting Function

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  • Alarie, Yves
  • Dionne, Georges

Abstract

This article analyzes the implications of basic lottery tests for the probability weighting function w(p). We first show that the w(p) function with one argument cannot accommodate three basic tests of lottery choice. We also discuss in detail the links between the w(p) function with one argument and the preference reversal paradox. In the last section we propose an evaluation function that accommodates the restrictions imposed by the tests and we provide an example of such function. Copyright 2001 by Kluwer Academic Publishers

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Bibliographic Info

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

Volume (Year): 22 (2001)
Issue (Month): 1 (January)
Pages: 21-33

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Handle: RePEc:kap:jrisku:v:22:y:2001:i:1:p:21-33

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

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Cited by:
  1. Nathalie Etchart-Vincent, 2009. "Probability weighting and the ‘level’ and ‘spacing’ of outcomes: An experimental study over losses," Journal of Risk and Uncertainty, Springer, vol. 39(1), pages 45-63, August.
  2. Yves Alarie & Georges Dionne, 2004. "On the Necessity of Using Lottery Qualities," Cahiers de recherche 0415, CIRPEE.
  3. Humphrey, Steven J. & Verschoor, Arjan, 2004. "The probability weighting function: experimental evidence from Uganda, India and Ethiopia," Economics Letters, Elsevier, vol. 84(3), pages 419-425, September.
  4. Mattos, Fabio & Garcia, Philip & Pennings, Joost M.E., 2008. "Probability weighting and loss aversion in futures hedging," Journal of Financial Markets, Elsevier, vol. 11(4), pages 433-452, November.
  5. Yves Alarie & Georges Dionne, 2006. "Lottery qualities," Journal of Risk and Uncertainty, Springer, vol. 32(3), pages 195-216, May.
  6. Anat Bracha, 2004. "Affective Decision Making in Insurance Markets," Yale School of Management Working Papers amz2665, Yale School of Management, revised 01 Sep 2004.

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