093056 (E12) Dynamically consistent preferences with quadratic beliefs : Eichberger J., Grant S., Journal of Risk and Uncertainty, Volume 14, Number 2, 1997, 189–207
- Book ID
- 104299932
- Publisher
- Elsevier Science
- Year
- 1997
- Tongue
- English
- Weight
- 183 KB
- Volume
- 20
- Category
- Article
- ISSN
- 0167-6687
No coin nor oath required. For personal study only.
✦ Synopsis
Three reasons for why people may evaluate utility in a rank-dependent fashion have been suggested: (a) rank-dependent weighting is a function of perceptual biases and thus not prescriptively defensible; (b) weights are (re)distributed by motivational processes that reflect stable personality characteristics of the decision maker;and (c) weights are (re)distributed as a function of the situation, allowing rank-dependent evaluation to be a rational response to an environment with asymmetric loss functions. By modifying a study by Wakker, Erev, and Weber (1994) we show that all three processes-that is, perceptual biases, individual predispositions in weighting, as well as rational adaptation to an asymmetric loss function-can be involved in rank-dependent weighting.