Kiel Working Papers, Kiel Institute for World Economics
No 1395:
Parametric Weighting Functions
Enrico Diecidue, Ulrich Schmidt and Horst Zank
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.
Keywords: Comonotonic independence, probability weighting function, preference foundation, rank-dependent utility; (follow links to similar papers)
JEL-Codes: D81; (follow links to similar papers)
33 pages, January 2008
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