Abstract

The shape of the probability weighting function is one of the most well-known empirical observations in judgment and decision-making research. The tendency to overweight low probability events and underweight high probability events stems from the categorical distinction between "not happening,” "a chance," and “happening." We demonstrate that individuals categorize uncertainty differently across contexts (e.g., numeric and visual representations of risk). These categorical perceptions produce additional probability distortion in the probability space. The resulting behavioral patterns necessitate revising the traditional inverse-S shaped probability weighting functions. Using experimental and model-based approaches, we demonstrate that probability sensitivity, and thus the shape of probability weighting functions, depends crucially on how individuals represent categories of risk.

Please contact dip.mkt@unibocconi.it if you wish to attend.