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Parametric weighting functions

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

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.

Suggested Citation

  • Diecidue, Enrico & Schmidt, Ulrich & Zank, Horst, 2008. "Parametric weighting functions," Kiel Working Papers 1395, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:1395
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    More about this item

    Keywords

    Probability weighting function; Preference foundation; Rank-dependent utility; Comonotonic independence;
    All these keywords.

    JEL classification:

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

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