Some Remarks About the Probability Weighting Function

Y. Alarie and Georges Dionne ()

Ecole des Hautes Etudes Commerciales de Montreal- from Ecole des Hautes Etudes Commerciales de Montreal-Chaire de gestion des risques.

Abstract: This paper analyses the implications of basic tests for lotteries on the probability weighting function w(p). We first show that the three standard tests for lottery choices imply that the w(p) function has a S-shape (first concave then convex) but is not regressive. For the pricing of lotteries the function has still a S-shape but is regressive. In the last section we propose a solution that accomodates the restrictions imposed by the choice tests and the pricing tests.

Keywords: PROBABILITY; REGRESSION ANALYSIS; MATHEMATICAL ANALYSIS (search for similar items in EconPapers)
JEL-codes: C60 D80 (search for similar items in EconPapers)
Pages: 20 pages
Date: 1998
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Citations: View citations in EconPapers (1)

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Working Paper: Some remarks about the probability weighting function (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:fth:etcori:98-17

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