Probability Weighting in Choice under Risk: An Empirical Test

Han Bleichrodt

Journal of Risk and Uncertainty, 2001, vol. 23, issue 2, 185-98

Abstract: This paper reports a violation of rank-dependent utility with inverse S-shaped probability weighting for binary gambles. The paper starts with a violation of expected utility theory: one-stage gambles elicit systematically different utilities than theoretically equivalent two-stage gambles. This systematic disparity does not disappear, but becomes more pronounced after correction for inverse S-shaped probability weighting. The data are also inconsistent with configural weight theory and Machina's fanning out hypothesis. Possible explanations for the data are loss aversion and anchoring and insufficient adjustment. Copyright 2001 by Kluwer Academic Publishers

Date: 2001
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