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Choice-Based Elicitation and Decomposition of Decision Weights for Gains and Losses under Uncertainty

Mohammed Abdellaoui, Frank Vossmann and Martin Weber
Management Science
Vol. 51, No. 9 (Sep., 2005), pp. 1384-1399
Published by: INFORMS
Stable URL: http://www.jstor.org/stable/20110428
Page Count: 16
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Choice-Based Elicitation and Decomposition of Decision Weights for Gains and Losses under Uncertainty
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Abstract

This paper reports the results of an experimental parameter-free elicitation and decomposition of decision weights under uncertainty. Assuming cumulative prospect theory, utility functions were elicited for gains and losses at an individual level using the tradeoff method. Subsequently, decision weights were elicited througfh certainty equivalents of uncertain two-outcome prospects. Furthermore, decision weights were decomposed using observable choice instead of invoking other empirical primitives, as in previous experimental studies. The choice-based elicitation of decision weights allows for a quantitative study of their characteristics, and also allows, among other things, for the examination of the sign-dependence hypothesis for observed choice under uncertainty. Our results confirm concavity of the utility function in the gain domain and bounded subadditivity of decision weights and choice-based subjective probabilities. We also find evidence for sign dependence of decision weights.

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