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Parametric Weighting Functions

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

Abstract

This paper provides behavioral foundations for parametric weighting functions under rankdependent 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 restricting the conditions to subsets of the probability interval, foundations of rank-dependent utility with parametric inverse-S shaped weighting functions are obtained.

Suggested Citation

  • Zank, Horst & Schmidt, Ulrich & Diecidue, Enrico, 2007. "Parametric Weighting Functions," Economics Working Papers 2007-01, Christian-Albrechts-University of Kiel, Department of Economics.
  • Handle: RePEc:zbw:cauewp:5301
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    References listed on IDEAS

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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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