Is Probability Weighting Sensitive to the Magnitude of Consequences? An Experimental Investigation on Losses

Nathalie Etchart-Vincent (nathalie.etchart-vincent@univ-paris1.fr)

Journal of Risk and Uncertainty, 2004, vol. 28, issue 3, 217-235

Abstract: Experimental investigations of the probability weighting function over losses are scarce and all involve small payoffs. The paper aims to give new insight into the probability weighting function for losses, by eliciting it through a simple two-stage semi-parametric procedure over more realistic losses, and by investigating its sensitivity to the magnitude of the payoffs. Current data confirm previous evidence of convex utility functions and inverse-S-shaped weighting functions. Still, at least for small probabilities, probability weighting appears to be affected by the size of consequences: the larger the losses, the more aversive the gambles and the more pessimistic the subjects are.

Date: 2004
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