Journal Article

Parametric Weighting Functions

Authors

  • Enrico Diecidue
  • Horst Zank
  • Ulrich Schmidt
Publication Date

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.

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Info

JEL Classification
D81

Key Words

  • probability weighting
  • rank-dependent utility