Working Paper

Parametric Weighting Functions

Authors

  • Enrico Diecidue
  • Ulrich Schmidt
  • Horst Zank
Publication Date

Abstract: 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

  • independence
  • preference foundation
  • probability weighting function
  • rank-dependent utility