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| Authors | A.S. Booij, B.M.S. van Praag, G. van de Kuilen | | Title | A parametric analysis of prospect theory’s functionals for the general population |
| Journal | Theory and Decision |
| Volume | 68 |
| Year | 2010 |
| Issue | 1 |
| Pages | 115-148 |
| ISSN | 15737187 |
| Faculty | Faculty of Economics and Business |
| Institute/dept. | FEB: Research Institute in Economics and Econometrics Amsterdam (RESAM) |
| Abstract | This article presents the results of an experiment that completely measures
the utility function and probability weighting function for different positive and
negative monetary outcomes, using a representative sample of N=1,935 from the
general public. The results confirm earlier findings in the lab, suggesting that utility is
less pronounced than what is found in classical measurements where expected utility
is assumed. Utility for losses is found to be convex, consistent with diminishing sensitivity,
and the obtained loss-aversion coefficient of 1.6 is moderate but in agreement
with contemporary evidence. The estimated probability weighting functions have an
inverse-S shape and they imply pessimism in both domains. These results show that
probability weighting is also an important phenomenon in the general population.
Women and lower educated individuals are found to be more risk averse, in agreement
with common findings. In contrast to previous studies that ascribed gender differences
in risk attitudes solely to differences in the degree utility curvature, however,
our results show that this finding is primarily driven by loss aversion and, for women,
also by a more pessimistic psychological response toward the probability of obtaining
the best possible outcome. |
| Document type | Article |
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