Elsevier

Cognitive Psychology

Volume 38, Issue 1, February 1999, Pages 129-166
Cognitive Psychology

Regular Article
On the Shape of the Probability Weighting Function,☆☆

https://doi.org/10.1006/cogp.1998.0710Get rights and content

Abstract

Empirical studies have shown that decision makers do not usually treat probabilities linearly. Instead, people tend to overweight small probabilities and underweight large probabilities. One way to model such distortions in decision making under risk is through a probability weighting function. We present a nonparametric estimation procedure for assessing the probability weighting function and value function at the level of the individual subject. The evidence in the domain of gains supports a two-parameter weighting function, where each parameter is given a psychological interpretation: one parameter measures how the decision maker discriminates probabilities, and the other parameter measures how attractive the decision maker views gambling. These findings are consistent with a growing body of empirical and theoretical work attempting to establish a psychological rationale for the probability weighting function.

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  • Cited by (0)

    This research was supported by a grant from the National Science Foundation (R.G.) and by the James S. Kemper Foundation Faculty Research Fund at the Graduate School of Business, the University of Chicago (G.W.). Portions of these data were presented at the Society for Mathematical Psychology Meetings, Norman, OK, 1993. We thank John Miyamoto and Peter Wakker for their insightful discussions about weighting functions. Amos Tversky provided helpful guidance during the early stages of this research. Lyle Brenner, Dale Griffin, Chip Heath, Josh Klayman, Duncan Luce, Drazen Prelec, Eldar Shafir, and Peter Wakker provided helpful comments on a previous draft.

    Address correspondence and reprint requests to either author: Richard Gonzalez, Department of Psychology, University of Michigan, Ann Arbor, MI 48109, or George Wu, University of Chicago, Graduate School of Business, 1101 E. 58th Street, Chicago, IL 60637. E-mail: [email protected]@gsb.uchicago.edu.

    ☆☆

    A. A. J. Marley

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