Separating curvature and elevation: A parametric probability weighting function

Olivier L'Haridon, Mohammed Abdellaoui and Horst Zank
Additional contact information
Horst Zank: Department of Applied Economics - Erasmus University Rotterdam

Post-Print from HAL

Abstract: This paper presents a preference foundation for a two-parameter family of probability weighting functions. We provide a theoretical link between the well-established notions of probabilistic risk attitudes (i.e., optimism and pessimism) used in economics and the important independent measures for individual behavior used in the psychology literature (i.e., curvature and elevation). One of the parameters in our model measures curvature and represents the diminishing effect of optimism and pessimism when moving away from extreme probabilities 0 and 1. The other parameter measures elevation and represents the relative strength of optimism vs. pessimism. Our empirical analysis indicates that the new weighting function fits elicited probability weights well, and that it can explain differences in the treatment of probabilities for gains compared to that for probabilities of losses.

Keywords: Curvature; Elevation; Optimism; Pessimism; Preference foundation; Prospect theory (search for similar items in EconPapers)
Date: 2010-08
References: Add references at CitEc
Citations: View citations in EconPapers (48)

Published in Journal of Risk and Uncertainty, 2010, 41 (1), pp.39-65. ⟨10.1007/s11166-010-9097-6⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Separating curvature and elevation: A parametric probability weighting function (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00528381

DOI: 10.1007/s11166-010-9097-6

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().