Economics working paper / Christian-Albrechts-Universität Kiel, Department of Economics 2007,01
This paper provides behavioral foundations for parametric weighting functions under rankdependent utility. This is achieved by decomposing the independence axiom of expected utility into separate meaningful properties. These conditions allow us to characterize rank-dependent utility with power and exponential weighting functions. Moreover, by restricting the conditions to subsets of the probability interval, foundations of rank-dependent utility with parametric inverse-S shaped weighting functions are obtained.
Comonotonic independence probability weighting function preference foundation rank-dependent utility