A shocking experiment: New evidence on probability weighting and common ratio violations

Abstract

We study whether probability weighting is observed when individuals are presented with a series of choices between lotteries consisting of real non-monetary adverse outcomes, electric shocks. Our estimation of the parameters of the probability weighting function proposed by Tversky and Kahneman (1992) are similar to those obtained in previous studies of lottery choice for negative monetary payoffs and negative hypothetical payoffs. In addition, common ratio violations in choice behavior are widespread. Our results provide evidence that probability weighting is a general phenomenon, independent of the source of disutility.