PROSPECT THEORY AND DECISION WEIGHTS

[[abstract]]Proposed by Kahneman and Tversky as an alternative model for analyzing choice under risk and uncertainty, prospect theory is characterized by a value function and a probability-weighting function which overweights small probabilities but underweights high and moderate probabilities. Since the probability-weighting function plays a crucial role in prospect theory and its applicability in various areas, the paper analyzes the correspondence between the probability-weighting function and the probability function embedded in choice under risk and uncertainty, and the properties of low-probabilities overweighting and subcertainty associated with the correspondence