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Parametric weighting functions

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

Abstract

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.

Suggested Citation

  • Diecidue, Enrico & Schmidt, Ulrich & Zank, Horst, 2009. "Parametric weighting functions," Journal of Economic Theory, Elsevier, vol. 144(3), pages 1102-1118, May.
    • Handle: RePEc:eee:jetheo:v:144:y:2009:i:3:p:1102-1118
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    More about this item

    Keywords

    Comonotonic independence Probability weighting function Preference foundation Rank-dependent utility;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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