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Choice-Based Elicitation and Decomposition of Decision Weights for Gains and Losses Under Uncertainty

Mohammed Abdellaoui, Frank Vossman and Martin Weber

No 3756, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper reports the results of an experimental parameter-free elicitation and decomposition of decision weights under uncertainty. Assuming cumulative prospect theory, utility functions were elicited for gains and losses at an individual level using the trade-off method. Then decision weights were elicited using certainty equivalents of uncertain two-outcome prospects. Furthermore, decision weights were decomposed using observable choice instead of invoking other empirical primitives as in the previous experimental studies. The choice-based elicitation of decision weights allows for a quantitative study of their characteristics, and also allows, among other things, to confront the sign-dependence hypothesis with observed choice under uncertainty. Our results confirm concavity of the utility function in the gain domain and bounded sub-additivity of decision weights as well as choice-based subjective probabilities. We also find evidence of sign-dependence of decision weights.

Keywords: choquet expected utility; cumulative prospect theory; decision under uncertainty (ambiguity); decision weights; probability weighting; subjective probabilities (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dcm and nep-exp
Date: 2003-02
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