Risk Attitudes and Decision Weights

Amos Tversky and Peter Wakker

Econometrica, 1995, vol. 63, issue 6, 1255-80

Abstract: To accommodate the observed pattern of risk-aversion and risk-seeking, as well as common violations of expected utility (e.g., the certainty effect), the authors introduce and characterize a weighting function according to which an event has greater impact when it turns impossibility into possibility, or possibility into certainty, than when it merely makes a possibility more or less likely. The authors show how to compare such weighting functions (of different individuals) with respect to the degree of departure from expected utility and they present a method for comparing an individual's weighting functions for risk and for uncertainty. Copyright 1995 by The Econometric Society.

Date: 1995
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