This paper analyses the implications of basic tests for lotteries on the probability weighting function w(p). We first show that the three standard tests for lottery choices imply that the w(p) function has a S-shape (first concave then convex) but is not regressive. For the pricing of lotteries the function has still a S-shape but is regressive. In the last section we propose a solution that accomodates the restrictions imposed by the choice tests and the pricing tests.
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Length: 20 pages Date of creation: 1998 Date of revision: Handle: RePEc:fth:etcori:98-17
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Find related papers by JEL classification: D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General C60 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - General