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Risk Aversion in Quiggin and Yaari's Rank-Order Model of Choice under Uncertainty

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  • Roell, Ailsa A
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    Abstract

    This paper studies the rank-dependent model of choice under uncertainty proposed by J. Quiggin in 1982 and elaborated by M. E. Yaari in 1984. First, a rigorous axiomatic foundation for the model is provided. A very close analogy with expected utility theory is drawn permitting a considerably simplified treatment. Risk aversion and its measurement are then studied; two characterizations, one weaker and one stronger, are presented in addition to the one considered by Yaari. Lastly, risk aversion and other properties of th model are related to empirically observed departures from expected utility maximizing behavior. Copyright 1987 by Royal Economic Society.

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    Bibliographic Info

    Article provided by Royal Economic Society in its journal The Economic Journal.

    Volume (Year): 97 (1987)
    Issue (Month): 388a (Supplement)
    Pages: 143-59

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    Handle: RePEc:ecj:econjl:v:97:y:1987:i:388a:p:143-59

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    Cited by:
    1. Johana Etner & Meglena Jeleva, 2004. "Pessimism or optimism : a justification to voluntary contributions toward environmental quality," Cahiers de la Maison des Sciences Economiques v04099, Université Panthéon-Sorbonne (Paris 1).
    2. Hui Huang & Shunming Zhang, 2011. "The Distorted Theory of Rank-Dependent Expected Utility," Annals of Economics and Finance, Society for AEF, vol. 12(2), pages 233-263, November.
    3. Ryan, Matthew J., 2006. "Risk aversion in RDEU," Journal of Mathematical Economics, Elsevier, vol. 42(6), pages 675-697, September.
    4. Diecidue, E. & Wakker, P.P., 2000. "On the Intuition of Rank-Dependent Utility," Discussion Paper 2000-74, Tilburg University, Center for Economic Research.
    5. Machina, Mark J, 2000. "Payoff Kinks in Preferences Over Lotteries," University of California at San Diego, Economics Working Paper Series qt7vn7d2hs, Department of Economics, UC San Diego.
    6. Diecidue, Enrico & Schmidt, Ulrich & Zank, Horst, 2009. "Parametric weighting functions," Journal of Economic Theory, Elsevier, vol. 144(3), pages 1102-1118, May.
    7. Éric Langlais, 2008. "Indemnisation des préjudices et fréquence des procès en présence d'une asymétrie d'information sur l'aversion au risque des parties," Recherches économiques de Louvain, De Boeck Université, vol. 74(2), pages 191-218.
    8. Bruno Deffains & Eric Langlais, 2009. "Legal Interpretative Process and Litigants’Cognitive Biases," EconomiX Working Papers 2009-8, University of Paris West - Nanterre la Défense, EconomiX.
    9. Langlais, Eric, 2010. "Safety and the Allocation of Costs in Large Accidents," MPRA Paper 25710, University Library of Munich, Germany.
    10. Grechuk, Bogdan & Zabarankin, Michael, 2014. "Inverse portfolio problem with mean-deviation model," European Journal of Operational Research, Elsevier, vol. 234(2), pages 481-490.
    11. Sven von Widekind, 2005. "Evolution of non-expected utility preferences," Working Papers 370, Bielefeld University, Center for Mathematical Economics.

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