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Probability weighting in different domains: the role of stakes, fungibility, and affect

Author

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  • Michał Krawczyk

    (Faculty of Economic Sciences, University of Warsaw)

Abstract

This paper reports the results of a laboratory experiment in which probability weighting functions for risky gains were elicited non-parametrically in over 500 incentivized subjects. I compare probability weights for monetary rewards to two less fungible domains involving vouchers for different types of consumption, inducing stronger or weaker (positive) emotions. The level of stakes was also manipulated. I find that the probability to win monetary rewards is weighted almost linearly in the high stakes condition, the probability to win vouchers associated with positive affect is underweighted and the probability to win affect-poor vouchers is strongly underweighted. Substantial underweighting also prevails in all three domains in the low stakes condition.

Suggested Citation

  • Michał Krawczyk, 2014. "Probability weighting in different domains: the role of stakes, fungibility, and affect," Working Papers 2014-15, Faculty of Economic Sciences, University of Warsaw.
    • Handle: RePEc:war:wpaper:2014-15
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    File URL: http://www.wne.uw.edu.pl/inf/wyd/WP/WNE_WP132.pdf
    File Function: First version, 2014
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    References listed on IDEAS

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    More about this item

    Keywords

    prospect theory; probability weighting functions; fungibility; affect;
    All these keywords.

    JEL classification:

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

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    This paper has been announced in the following NEP Reports:

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