Choice-Based Elicitation and Decomposition of Decision Weights for Gains and Losses Under Uncertainty
Frank Vossman and
No 3756, CEPR Discussion Papers from C.E.P.R. Discussion Papers
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)
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Journal Article: Choice-Based Elicitation and Decomposition of Decision Weights for Gains and Losses Under Uncertainty (2005)
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