Journal of Risk and Uncertainty

, Volume 16, Issue 2, pp 147–163 | Cite as

Stochastic Dominance and Prospect Dominance with Subjective Weighting Functions

  • Haim Levy
  • Zvi Wiener

Abstract

Laboratory experiments with and without real money repeatedly reveal that even if all subjects observe the same pair of cumulative distributions F and G, they act as if they were other cumulative probability functions F* and G* different for different investors. Namely, the subjects assign (subjective) weights to the various probabilities. In their breakthrough article Kahneman and Tversky [1979] suggest that in making decisions under uncertainty, the subjects apply a monotonic transformation π(p) where p are the probabilities, and investors make decisions by comparing π(p) corresponding to the two distributions under consideration rather than by comparing the true probabilities, p, themselves.

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Copyright information

© Kluwer Academic Publishers 1998

Authors and Affiliations

  • Haim Levy
    • 1
  • Zvi Wiener
    • 1
  1. 1.School of BusinessThe Hebrew University of JerusalemIsrael

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