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Some Remarks About the Probability Weighting Function

Author

Listed:
  • Alarie, Y.
  • Dionne, G.

Abstract

This paper analyses the implications of basic tests for lotteries on the probability weighting function w(p). We first show that the three standard tests for lottery choices imply that the w(p) function has a S-shape (first concave then convex) but is not regressive. For the pricing of lotteries the function has still a S-shape but is regressive. In the last section we propose a solution that accomodates the restrictions imposed by the choice tests and the pricing tests.

Suggested Citation

  • Alarie, Y. & Dionne, G., 1998. "Some Remarks About the Probability Weighting Function," Ecole des Hautes Etudes Commerciales de Montreal- 98-17, Ecole des Hautes Etudes Commerciales de Montreal-Chaire de gestion des risques..
    • Handle: RePEc:fth:etcori:98-17
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    Cited by:

    1. Alarie, Yves, 2000. "L’importance de la procédure dans les choix de loteries," L'Actualité Economique, Société Canadienne de Science Economique, vol. 76(3), pages 321-340, septembre.

    More about this item

    Keywords

    PROBABILITY ; REGRESSION ANALYSIS ; MATHEMATICAL ANALYSIS;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General

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