 Efficient elicitation of utility and probability weighting functionsPavlo Blavatskyy No 211, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich Abstract: 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 individual�s utility function is elicited through the midpoint chaining certainty equivalent method employing the probability elicited at the first stage as an input. Finally, an individual�s probability weighting function is elicited through the probability equivalent method. Keywords: decision theory; rank-dependent expected utility; cumulative prospect theory; von Neumann-Morgenstern utility; probability weighting; elicitation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:zur:iewwpx:211 Access Statistics for this paper More papers in IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich |
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