### Abstract

Original language | English |
---|---|

Pages (from-to) | 115-148 |

Journal | Theory and Decision |

Volume | 68 |

Issue number | 1-2 |

Publication status | Published - 2010 |

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### Cite this

*Theory and Decision*,

*68*(1-2), 115-148.

}

*Theory and Decision*, vol. 68, no. 1-2, pp. 115-148.

**A parametric analysis of prospect theory’s functionals for the general population.** / Booij, A.S.; van Praag, B.M.S.; van de Kuilen, G.

Research output: Contribution to journal › Article › Scientific › peer-review

TY - JOUR

T1 - A parametric analysis of prospect theory’s functionals for the general population

AU - Booij, A.S.

AU - van Praag, B.M.S.

AU - van de Kuilen, G.

PY - 2010

Y1 - 2010

N2 - 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.

AB - 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.

M3 - Article

VL - 68

SP - 115

EP - 148

JO - Theory and Decision

JF - Theory and Decision

SN - 0040-5833

IS - 1-2

ER -