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Title: A simple derivation of Prelec’s probability weighting function
Authors: al-Nowaihi, Ali
Dhami, Sanjit
First Published: Aug-2005
Publisher: Dept. of Economics, University of Leicester
Abstract: Since Kahneman and Tversky (1979), it has been generally recognized that decision makers overweight low probabilities and underweight high probabilities. Of the several weighting functions that have been proposed, that of Prelec (1998) has the attractions that it is parsimonious, consistent with much of the available empirical evidence and has an axiomatic foundation. Luce (2001) provided a simpler derivation based on reduction invariance, rather than compound invariance of Prelec (1998). This note gives a simpler form of reduction invariance, which we call power invariance. A more direct derivation of Prelec’s function is given, achieving a further simplification.
Series/Report no.: Discussion Papers in Economics
Type: Report
Appears in Collections:Reports, Dept. of Economics

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