The certainty effect and boundary effects with transformed probabilities

Prospect theory and rank-dependent utility are nowadays the most prominent descriptive models of decision making under risk. Both theories rely on the notion that probabilities are transformed into decision weights. This pape r proposes two particular hypotheses of decision weights which underweight all probabilities less than unity. Interestingly, these two hypotheses lead to special cases of a class of models which have been developed to accommo date the certainty effect and boundary effects but have not been related to transformed probabilities before. (C) 2000 Elsevier Science S.A. All right s reserved.