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Parametric weighting functions

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

This paper provides preference foundations for parametric weighting functions under rank-dependent 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 allowing probabilistic risk attitudes to vary within the probability interval, a preference foundation for rank-dependent utility with parametric inverse-S shaped weighting function is obtained.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 144 (2009)
Issue (Month): 3 (May)
Pages: 1102-1118

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Handle: RePEc:eee:jetheo:v:144:y:2009:i:3:p:1102-1118
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