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The Slicing Method: Determining Insensitivity Regions of Probability Weighting Functions

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  • Martín Egozcue

    (University of Montevideo
    Catholic University of Uruguay
    Norte Construcciones S.A.)

  • Luis Fuentes García

    (Universidade da Coruña)

  • Ričardas Zitikis

    (Western University
    York University)

Abstract

A popular rule of thumb, usually called “heuristic technique” in Behavioral Economics, for determining the likelihood insensitivity regions of probability weighting functions (pwf’s) is based on searching for points at which the pwf’s are twice their values at half the points. Although this technique works remarkably well for many commonly used pwf’s, it sometimes fails to provide the correct answer. In order to cover the class of pwf’s for which the heuristic technique does not work, in this paper we propose, discuss, and illustrate an extension of the technique into what we call the “slicing method,” which is capable of finding the subadditivity and insensitivity regions of any continuous pwf.

Suggested Citation

  • Martín Egozcue & Luis Fuentes García & Ričardas Zitikis, 2023. "The Slicing Method: Determining Insensitivity Regions of Probability Weighting Functions," Computational Economics, Springer;Society for Computational Economics, vol. 61(4), pages 1369-1402, April.
    • Handle: RePEc:kap:compec:v:61:y:2023:i:4:d:10.1007_s10614-022-10252-8
    DOI: 10.1007/s10614-022-10252-8
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