Incremental Preference Elicitation for Decision Making Under Risk with the Rank-Dependent Utility Model

This work concerns decision making under risk with the rank-dependent utility model (RDU), a generalization of expected utility providing enhanced descriptive possibilities. We introduce a new incremental decision procedure, involving monotone regression spline functions to model both components of RDU, namely the probability weighting function and the utility function. First, assuming the utility function is known, we propose an elicitation procedure that incrementally collects preference information in order to progressively specify the probability weighting function until the optimal choice can be identified. Then, we present two elicitation procedures for the construction of a utility function as a monotone spline. Finally, numerical tests are provided to show the practical efficiency of the proposed methods.