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The Influence Of Probability on Risky Choice: A parametric Examination

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Author Info
Pamela K. Lattimore
Joanna R. Baker
A. Dryden Witte
Abstract

The appeal of expected utility theory as a basis for a descriptive model of risky decision making has diminished is a result of empirical evidence which suggests that individuals do not behave in a manner consistent with the prescriptive tenets of EUT. In this paper, we explore the influence of probability on risky choice. by proposing and estimating a parametric model of risky decision making. Our results suggest that models which provide for probability transformations are most appropriate for the majority of subjects. Further. we find that the transformation differs for most subjects depending upon whether the risky outcomes are gains or losses. Most subjects are considerably less sensitive to changes in mid-range probability than is proposed by the expected utility model and risk-seeking behavior over "long-shot" odds is common

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0081.

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Date of creation: Aug 1992
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Publication status: published as Journal of Economic Behavior and Organization, Vol. 17, pp. 377-400, (1992)
Handle: RePEc:nbr:nberte:0081

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  1. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December. [Downloadable!] (restricted)
  2. Machina, Mark J, 1987. "Choice under Uncertainty: Problems Solved and Unsolved," Journal of Economic Perspectives, American Economic Association, vol. 1(1), pages 121-54, Summer. [Downloadable!] (restricted)
  3. Uzi Segal, 1986. "Some Remarks on Quiggin's Anticipated Utility," UCLA Economics Working Papers 392, UCLA Department of Economics. [Downloadable!]
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  4. Quiggin, John, 1987. "Decision weights in anticipated utility theory : Response to Segal," Journal of Economic Behavior & Organization, Elsevier, vol. 8(4), pages 641-645, December. [Downloadable!] (restricted)
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  1. Loreto Llorente & Josemari Aizpurua, 2006. "A BETTING MARKET: Description and a theoretical explanation of bets in Pelota Matches," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 0603, Departamento de Economía - Universidad Pública de Navarra. [Downloadable!]
  2. Erling Eide, . "Recent developments in Economics of Crime," German Working Papers in Law and Economics 2004-1-1086, Berkeley Electronic Press. [Downloadable!]
  3. Marcello Basili & Alain Chateauneuf & Fulvio Fontini, 2004. "Choices under ambiguity with familiar and unfamiliar outcomes," Cahiers de la Maison des Sciences Economiques b04115, Université Panthéon-Sorbonne (Paris 1). [Downloadable!]
  4. Ann Dryden Witte & Robert Witt, 2001. "What We Spend and What We Get: Public and Private Provision of Crime Prevention," NBER Working Papers 8204, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Abdellaoui, Mohammed & Vossman, Frank & Weber, Martin, 2003. "Choice-Based Elicitation and Decomposition of Decision Weights for Gains and Losses Under Uncertainty," CEPR Discussion Papers 3756, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. Helga Fehr-Duda & Marc Schürer & Renate Schubert, 2006. "What Determines the Shape of the Probability Weighting Function?," Economics working paper series 06/54, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
  7. Loreto Llorente, 2006. "Rank Dependent Expected Utility in the Pelota Betting System: an Experiment," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 0604, Departamento de Economía - Universidad Pública de Navarra. [Downloadable!]
  8. Walther Herbert, 2005. "Optimal Taxation of Gambling and Lotto," Working Papers geewp47, Vienna University of Economics and B.A. Research Group: Growth and Employment in Europe: Sustainability and Competitiveness. [Downloadable!]
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