Is Prelec’s function discontinuous at p = 1? (for the Einhorn Award of SJDM)

Harin, Alexander (2015): Is Prelec’s function discontinuous at p = 1? (for the Einhorn Award of SJDM).

Abstract

A possibility of the existence of a discontinuity of Prelec’s (probability weighting) function at the probability p = 1 is discussed. This possibility is supported by the purely mathematical theorems and the “certain–uncertain” inconsistency of the random–lottery incentive experiments. The results of the well-known experiment support it as well.

• Item Type: MPRA Paper
• Language: English
• Keywords: Prelec; utility; prospect theory; probability weighting function; Luce
• Subjects: C - Mathematical and Quantitative Methods > C0 - General; C - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical Methods; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General; C - Mathematical and Quantitative Methods > C8 - Data Collection and Data Estimation Methodology ; Computer Programs; C - Mathematical and Quantitative Methods > C9 - Design of Experiments; C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior; C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C93 - Field Experiments; D - Microeconomics > D0 - General > D01 - Microeconomic Behavior: Underlying Principles; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty; G - Financial Economics > G0 - General > G02 - Behavioral Finance: Underlying Principles; G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions

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