Solving the St. Petersburg Paradox in cumulative prospect theory: the right amount of probability weighting

Theory and Decision 71 (3):325-341 (2011)
  Copy   BIBTEX


Cumulative Prospect Theory (CPT) does not explain the St. Petersburg Paradox. We show that the solutions related to probability weighting proposed to solve this paradox, (Blavatskyy, Management Science 51:677–678, 2005; Rieger and Wang, Economic Theory 28:665–679, 2006) have to cope with limitations. In that framework, CPT fails to accommodate both gambling and insurance behavior. We suggest replacing the weighting functions generally proposed in the literature by another specification which respects the following properties: (1) to solve the paradox, the slope at zero has to be finite. (2) to account for the fourfold pattern of risk attitudes, the probability weighting has to be strong enough.



    Upload a copy of this work     Papers currently archived: 92,038

External links

Setup an account with your affiliations in order to access resources via your University's proxy server

Through your library

Similar books and articles

Intergenerational impartiality: Replacing discounting by probability weighting. [REVIEW]Yew-Kwang Ng - 2005 - Journal of Agricultural and Environmental Ethics 18 (3):237-257.
The paradox of the preface.John L. Pollock - 1986 - Philosophy of Science 53 (2):246-258.
Intergenerational Impartiality: Replacing Discounting by Probability Weighting.Ng Yew-Kwang - 2005 - Journal of Agricultural and Environmental Ethics 18 (3):237-257.
Quantifier probability logic and the confirmation paradox.Theodore Hailperin - 2007 - History and Philosophy of Logic 28 (1):83-100.
Generalizing the lottery paradox.Igor Douven & Timothy Williamson - 2006 - British Journal for the Philosophy of Science 57 (4):755-779.


Added to PP

116 (#154,167)

6 months
14 (#179,899)

Historical graph of downloads
How can I increase my downloads?

Citations of this work

No citations found.

Add more citations

References found in this work

Prospect Theory: An Analysis of Decision Under Risk.D. Kahneman & A. Tversky - 1979 - Econometrica: Journal of the Econometric Society:263--291.
Weighing risk and uncertainty.Amos Tversky & Craig R. Fox - 1995 - Psychological Review 102 (2):269-283.

Add more references