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Choice-Based Elicitation and Decomposition of Decision Weights for Gains and Losses Under Uncertainty

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  • Abdellaoui, Mohammed
  • Vossman, Frank
  • Weber, Martin

Abstract

This Paper reports the results of an experimental parameter-free elicitation and decomposition of decision weights under uncertainty. Assuming cumulative prospect theory, utility functions were elicited for gains and losses at an individual level using the trade-off method. Then decision weights were elicited using certainty equivalents of uncertain two-outcome prospects. Furthermore, decision weights were decomposed using observable choice instead of invoking other empirical primitives as in the previous experimental studies. The choice-based elicitation of decision weights allows for a quantitative study of their characteristics, and also allows, among other things, to confront the sign-dependence hypothesis with observed choice under uncertainty. Our results confirm concavity of the utility function in the gain domain and bounded sub-additivity of decision weights as well as choice-based subjective probabilities. We also find evidence of sign-dependence of decision weights.

Suggested Citation

  • 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.
  • Handle: RePEc:cpr:ceprdp:3756
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    References listed on IDEAS

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    Keywords

    choquet expected utility; cumulative prospect theory; decision under uncertainty (ambiguity); decision weights; probability weighting; subjective probabilities;

    JEL classification:

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

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