Some remarks about the probability weighting function

Yves Alarie and Georges Dionne ()
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Yves Alarie: HEC Montreal, Canada Research Chair in Risk Management

No 98-17, Working Papers from HEC Montreal, Canada Research Chair in Risk Management

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 weighting function w(p); standard tests for lottery choices; w(p) function; regressive function; tests; pricing of lotteries (search for similar items in EconPapers)
JEL-codes: D80 (search for similar items in EconPapers)
Pages: 26 pages
Date: 1998-12-01
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Some Remarks About the Probability Weighting Function (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:crcrmw:1998_017

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