This Article Full Text (PDF) References Alert me when this article is cited Alert me if a correction is posted Services Email this article to a friend Similar articles in this journal Alert me to new issues of the journal Download to citation manager Citing Articles Citing Articles via HighWire Citing Articles via Google Scholar Google Scholar Articles by Bleichrodt, H. Articles by Pinto, J. L. Search for Related Content

A Parameter-Free Elicitation of the Probability Weighting Function in Medical Decision Analysis

iMTA/iBMG, Erasmus University, P.O. Box 1738, 3000 DR Rotterdam, The Netherlands
Department of Economics, Universitat Pompeu Fabra, Barcelona, Spain
bleichrodt{at}bmg.eur.nl
jose.pinto{at}econ.upf.es

An important reason why people violate expected utility theory is probability weighting. Previous studies on the probability weighting function typically assume a specific parametric form, exclude heterogeneity in individual preferences, and exclusively consider monetary decision making. This study presents a method to elicit the probability weighting function in rank-dependent expected utility theory that makes no prior assumptions about the functional form of the probability weighting function. We use both aggregate and individual subject data, thereby allowing for heterogeneity of individual preferences, and we examine probability weighting in a new domain, medical decision making. There is significant evidence of probability weighting both at the aggregate and at the individual subject level. The modal probability weighting function is inverse S-shaped, displaying both lower subadditivity and upper subadditivity. Probability weighting is in particular relevant at the boundaries of the unit interval. Compared to studies involving monetary outcomes, we generally find more elevation of the probability weighting function. The robustness of the empirical findings on probability weighting indicates its importance. Ignoring probability weighting in modeling decision under risk and in utility measurement is likely to lead to descriptively invalid theories and distorted elicitations.

Key Words: nonexpected utility; decision theory; probability weighting; utility assessment; medical decision making

This article has been cited by other articles:

				H. Bleichrodt, A. Cillo, and E. Diecidue A Quantitative Measurement of Regret Theory Management Science, January 1, 2010; 56(1): 161 - 175. [Abstract] [PDF]

				H. Bleichrodt, U. Schmidt, and H. Zank Additive Utility in Prospect Theory Management Science, May 1, 2009; 55(5): 863 - 873. [Abstract] [PDF]

				G. Wu and A. B. Markle An Empirical Test of Gain-Loss Separability in Prospect Theory Management Science, July 1, 2008; 54(7): 1322 - 1335. [Abstract] [PDF]

				U. Schmidt and H. Zank Risk Aversion in Cumulative Prospect Theory Management Science, January 1, 2008; 54(1): 208 - 216. [Abstract] [PDF]

				P. P. Wakker, D. R. M. Timmermans, and I. Machielse The Effects of Statistical Information on Risk and Ambiguity Attitudes, and on Rational Insurance Decisions Management Science, November 1, 2007; 53(11): 1770 - 1784. [Abstract] [PDF]

				M. Abdellaoui, H. Bleichrodt, and C. Paraschiv Loss Aversion Under Prospect Theory: A Parameter-Free Measurement Management Science, October 1, 2007; 53(10): 1659 - 1674. [Abstract] [PDF]

				H. Bleichrodt, J. M. Abellan-Perpinan, J. L. Pinto-Prades, and I. Mendez-Martinez Resolving Inconsistencies in Utility Measurement Under Risk: Tests of Generalizations of Expected Utility Management Science, March 1, 2007; 53(3): 469 - 482. [Abstract] [PDF]

				E. Avineri The Effect of Reference Point on Stochastic Network Equilibrium Transportation Science, November 1, 2006; 40(4): 409 - 420. [Abstract] [PDF]

				M. Abdellaoui, F. Vossmann, and M. Weber Choice-Based Elicitation and Decomposition of Decision Weights for Gains and Losses Under Uncertainty Management Science, September 1, 2005; 51(9): 1384 - 1399. [Abstract] [PDF]

				P. R. Blavatskyy Back to the St. Petersburg Paradox? Management Science, April 1, 2005; 51(4): 677 - 678. [Abstract] [PDF]

				J. M. E. Pennings and A. Smidts The Shape of Utility Functions and Organizational Behavior Management Science, September 1, 2003; 49(9): 1251 - 1263. [Abstract] [PDF]

				V. Kobberling and P. P. Wakker Preference Foundations for Nonexpected Utility: A Generalized and Simplified Technique Mathematics of Operations Research, August 1, 2003; 28(3): 395 - 423. [Abstract] [PDF]

				P. Delquie Optimal Conflict in Preference Assessment Management Science, January 1, 2003; 49(1): 102 - 115. [Abstract] [PDF]

				M. Kilka and M. Weber What Determines the Shape of the Probability Weighting Function Under Uncertainty? Management Science, December 1, 2001; 47(12): 1712 - 1726. [Abstract] [PDF]

				H. Bleichrodt, J. L. Pinto, and P. P. Wakker Making Descriptive Use of Prospect Theory to Improve the Prescriptive Use of Expected Utility Management Science, November 1, 2001; 47(11): 1498 - 1514. [Abstract] [PDF]