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Working Paper

Parametric Weighting Functions

Authors

  • Diecidue
  • E.
  • Schmidt
  • U.
  • Zank
  • H.

Publication Date

JEL Classification

D81

Key Words

independence

preference foundation

probability weighting function

rank-dependent utility

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.

Kiel Institute Expert

  • Prof. Dr. Dr. Ulrich Schmidt
    Research Director

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Research Center

  • Macroeconomics

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