Discussion paper

DP3756 Choice-Based Elicitation and Decomposition of Decision Weights for Gains and Losses Under Uncertainty

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 trade-off method. Then decision weights were elicited using certainty equivalents of uncertain two-outcome prospects. Furthermore, decision weights were decomposed using observable choice instead of invoking other empirical primitives as in the previous experimental studies. The choice-based elicitation of decision weights allows for a quantitative study of their characteristics, and also allows, among other things, to confront the sign-dependence hypothesis with observed choice under uncertainty. Our results confirm concavity of the utility function in the gain domain and bounded sub-additivity of decision weights as well as choice-based subjective probabilities. We also find evidence of sign-dependence of decision weights.

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Citation

Weber, M, F Vossman and M Abdellaoui (2003), ‘DP3756 Choice-Based Elicitation and Decomposition of Decision Weights for Gains and Losses Under Uncertainty‘, CEPR Discussion Paper No. 3756. CEPR Press, Paris & London. https://cepr.org/publications/dp3756