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Parametric Weighting Functions

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  • Enrico Diecidue
  • Ulrich Schmidt
  • Horst Zank

Abstract

This paper provides preference 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 allowing probabilistic risk attitudes to vary within the probability interval, a preference foundation for rank-dependent utility with parametric inverse-S shaped weighting function is obtained.
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Suggested Citation

  • Enrico Diecidue & Ulrich Schmidt & Horst Zank, 2006. "Parametric Weighting Functions," Economics Discussion Paper Series 0622, Economics, The University of Manchester.
    • Handle: RePEc:man:sespap:0622
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    File URL: http://hummedia.manchester.ac.uk/schools/soss/economics/discussionpapers/EDP-0622.pdf
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    References listed on IDEAS

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    JEL classification:

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

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