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Parametric Weighting Functions

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  • Zank, Horst
  • Schmidt, Ulrich
  • Diecidue, Enrico

Abstract

This paper provides behavioral foundations for parametric weighting functions under rankdependent utility. This is achieved by decomposing the independence axiom of expected utility into separate meaningful properties. These conditions allow us to characterize rank-dependent utility with power and exponential weighting functions. Moreover, by restricting the conditions to subsets of the probability interval, foundations of rank-dependent utility with parametric inverse-S shaped weighting functions are obtained. --

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Bibliographic Info

Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2007,01.

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Date of creation: 2007
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Handle: RePEc:zbw:cauewp:5301

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Keywords: Comonotonic independence; probability weighting function; preference foundation; rank-dependent utility;

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Citations

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Cited by:
  1. Kaluszka, Marek & Krzeszowiec, Michał, 2012. "Pricing insurance contracts under Cumulative Prospect Theory," Insurance: Mathematics and Economics, Elsevier, vol. 50(1), pages 159-166.
  2. Webb, Craig S. & Zank, Horst, 2011. "Accounting for optimism and pessimism in expected utility," Journal of Mathematical Economics, Elsevier, vol. 47(6), pages 706-717.
  3. 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.
  4. Horst Zank, 2010. "Consistent probability attitudes," Economic Theory, Springer, vol. 44(2), pages 167-185, August.
  5. Aurélien Baillon & Han Bleichrodt & Umut Keskin & Olivier L'Haridon & Author-Name: Chen Li, 2013. "Learning under ambiguity: An experiment using initial public offerings on a stock market," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201331, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
  6. repec:hal:wpaper:halshs-00748662 is not listed on IDEAS
  7. Mohammed Abdellaoui & Olivier L’Haridon & Horst Zank, 2010. "Separating curvature and elevation: A parametric probability weighting function," Journal of Risk and Uncertainty, Springer, vol. 41(1), pages 39-65, August.
  8. Martina Nardon & Paolo Pianca, 2012. "Prospect theory: An application to European option pricing," Working Papers 2012:34, Department of Economics, University of Venice "Ca' Foscari".
  9. Daniel Cavagnaro & Mark Pitt & Richard Gonzalez & Jay Myung, 2013. "Discriminating among probability weighting functions using adaptive design optimization," Journal of Risk and Uncertainty, Springer, vol. 47(3), pages 255-289, December.
  10. Nathalie Etchart-Vincent, 2009. "Probability weighting and the 'level' and 'spacing' of outcomes: An experimental study over losses," Post-Print hal-00395876, HAL.
  11. repec:hal:cesptp:halshs-00748662 is not listed on IDEAS

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