Journal Article
Parametric Weighting Functions
This paper provides preference foundations for parametric weighting functions under rankdependent
utility. This is achieved by decomposing the independence axiom of expected utility into
separate meaningful properties. These conditions allow us to characterize rank-dependent utility with
power and exponential weighting functions. Moreover, by allowing probabilistic risk attitudes to vary
within the probability interval, a preference foundation for rank-dependent utility with parametric
inverse-S shaped weighting function is obtained.
Key Words
- probability weighting
- rank-dependent utility