Efficient elicitation of utility and probability weighting functions
Elicitation methods in decision making under risk allow a researcher to infer the subjective utilities of outcomes as well as the subjective weights of probabilities from the observed preferences of an individual. An optimally efficient elicitation method is proposed, which takes into account the inevitable distortion of preferences by random errors and minimizes the effect of such errors on the inferred utility and probability weighting functions. Under mild assumptions, the optimally efficient method for eliciting utilities (weights) of many outcomes (probabilities) is the following three-stage procedure. First, a probability is elicited whose subjective weight is one half. Second, an individualï¿½s utility function is elicited through the midpoint chaining certainty equivalent method employing the probability elicited at the first stage as an input. Finally, an individualï¿½s probability weighting function is elicited through the probability equivalent method.
|Date of creation:|
|Date of revision:|
|Contact details of provider:|| Postal: Schönberggasse 1, CH-8001 Zürich|
Phone: +41-1-634 21 37
Fax: +41-1-634 49 82
Web page: http://www.econ.uzh.ch/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
- Starmer, Chris & Sugden, Robert, 1989. "Probability and Juxtaposition Effects: An Experimental Investigation of the Common Ratio Effect," Journal of Risk and Uncertainty, Springer, vol. 2(2), pages 159-78, June.
- Hey, John D & Orme, Chris, 1994. "Investigating Generalizations of Expected Utility Theory Using Experimental Data," Econometrica, Econometric Society, vol. 62(6), pages 1291-1326, November.
- Mark McCord & Richard de Neufville, 1986. ""Lottery Equivalents": Reduction of the Certainty Effect Problem in Utility Assessment," Management Science, INFORMS, vol. 32(1), pages 56-60, January.
When requesting a correction, please mention this item's handle: RePEc:zur:iewwpx:211. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marita Kieser)
If references are entirely missing, you can add them using this form.