Probability weighting functions

Martina Nardon () and Paolo Pianca ()
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Paolo Pianca: Department of Economics, C� Foscari University Of Venice

No 2015:29, Working Papers from Department of Economics, University of Venice "Ca' Foscari"

Abstract: Cumulative prospect theory (CPT) has been proposed as an alternative to expected utility theory to explain irregular behavior by economic agents. CPT comprises two key transformations: one of outcome values and the other of objective probabilities. Risk attitudes are derived from the shapes of these transformations as well as their interaction. The focus of this contribution is on the transformation of objective probability, which is commonly referred as probability weighting function. We review different families of weighting functions proposed in the literature and study their features.

Keywords: Cumulative prospect theory; probability weighting function. (search for similar items in EconPapers)
JEL-codes: C63 D81 G13 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2015
New Economics Papers: this item is included in nep-upt
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Citations: View citations in EconPapers (2)

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