Psychophysics of the probability weighting function

Abstract

A probability weighting function w(p) for an objective probability p in decision under risk plays a pivotal role in KahnemanTversky prospect theory. Although recent studies in econophysics and neuroeconomics widely utilized probability weighting functions, psychophysical foundations of the probability weighting functions have been unknown. Notably, a behavioral economist Prelec (1998) [4] axiomatically derived the probability weighting function w(p)=exp(-(-lnp)α) (0