The Role of area-yield crop insurance program face to the Mid-term Review of Common Agricultural Policy

used to represent the probability weighting function that should have the inverse-S-shape.

This work used the following function of two parameters:

cp^α

f(p) =   _α ⁴"----_a

cp^α + (1 - p)^a

where:

f- probability weighting function;

p-probabilities;

γ - Parameter that represents the curvature; and,
δ - Parameter that represents an upward.

The graphic representation is as follows:

Figure 2 - Probability Weighting Function

Gonzalez and Wu affirm that this function allows to portray two behaviors of the decision
maker: (i) diminishing sensitivity; (ii) attractiveness. The property of diminishing
sensitivity presented by Tversky and Kahneman means that the people become less
sensitive to changes in probabilities as they move away from the reference point. In the
domain of the probabilities, the two endpoints 0 and 1 represent the reference points in
the sense that one represents the “certainty that it doesn't happen” and another represents

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