A Cognitive-Emotional Account of the Shape of the Probability Weighting Function

Abstract

Research has shown a tendency of decision makers to overweight small probabilities and to underweight moderate and large probabilities. In standard treatments this is graphically modeled by an inverse S-shaped probability weighting function. We suggest that emotions play a significant role in the shaping of the probability weighting function. In particular, the weighting function is proposed to be some function of objective probability, expected elation, and expected disappointment. The overweighting of small probabilities results from the anticipated elation after having won, given that winning was very unlikely. The underweighting of large probabilities results from anticipated disappointment after having failed to win, given that winning was very likely. Hence, probability is assumed to influence utility. Three experiments investigate these hypotheses. Experiments 1 and 2 show that a convex function relates probability to surprise. Experiment 3 elicits choice data and further supports the proposed hypotheses. The model adds to the understanding of the cognitive and emotional processes underlying the shape of the probability weighting function. Copyright © 2002 John Wiley & Sons, Ltd.