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Probability Weighting in Choice under Risk: An Empirical Test

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Abstract

This paper reports a violation of rank-dependent utility with inverse S-shaped probability weighting for binary gambles. The paper starts with a violation of expected utility theory: one-stage gambles elicit systematically different utilities than theoretically equivalent two-stage gambles. This systematic disparity does not disappear, but becomes more pronounced after correction for inverse S-shaped probability weighting. The data are also inconsistent with configural weight theory and Machina's fanning out hypothesis. Possible explanations for the data are loss aversion and anchoring and insufficient adjustment.

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Authors and Affiliations

  1. iMTA/iBMG, Erasmus University, PO Box 1738, 3000 DR, Rotterdam, The Netherlands

    Han Bleichrodt

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  1. Han Bleichrodt
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Bleichrodt, H. Probability Weighting in Choice under Risk: An Empirical Test. Journal of Risk and Uncertainty 23, 185–198 (2001). https://doi.org/10.1023/A:1011136203223

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  • DOI: https://doi.org/10.1023/A:1011136203223

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