TY  - RPRT
        AU  - Rablen, Matthew D.
        TI  - Foundations of the Rank-Dependent Probability Weighting Function
        PY  - 2019/Oct/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 12701
        UR  - https://www.iza.org/publications/dp12701
        AB  - The psychological basis for rank-dependent probability weighting, and for an inverse-S probability weighting function (PWF) in particular, has often been questioned. I examine the existence and shape of the PWF in a model allowing for optimism/pessimism over probability distributions and for loss averse/gain loving stochastic reference dependence. I give commonly observed shapes of PWF a psychological interpretation. In particular, I establish a deep connection between two of the most established phenomena in decisionmaking: loss aversion and the inverse-S PWF: the former is a pre- condition for the latter.
        KW  - probability weighting
KW  - rank dependent expected utility
KW  - loss aversion
KW  - reference dependence
KW  - optimism
KW  - pessimism
        ER  -