Economics, Econometrics and Finance
4 years ago

Negative decision weights in popular theory could lead to risky choices.

RePEc: Research Papers in Economics
Non-Monotonicity of the Tversky-Kahneman Probability-Weighting Function: A Cautionary Note
Jonathan E. Ingersoll

Paper Summary

The Tversky-Kahneman probability-weighting function in Cumulative Prospect Theory can sometimes give negative decision weights, leading to choosing inferior options. This issue could affect the validity of certain theorems in economic models.

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