Understanding the Two Components of Risk Attitudes: An Experimental Analysis
AbstractCumulative prospect theory introduced the weighting of probabilities as an additional component to capture risk attitudes. However, this addition would be a less significant challenge to expected utility theory (EU) if utility curvature and probability weighting showed strong positive correlation. In that case the utility curvature in EU alone, although not properly describing risky behavior in general, would still capture most of the variance of individual risk aversion. This study provides experimental evidence that such a strong and positive correlation does not exist. Although most individuals exhibit concave utility and convex probability weighting, the two components show no strong positive correlation. This paper was accepted by Peter Wakker, decision analysis.
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Bibliographic InfoArticle provided by INFORMS in its journal Management Science.
Volume (Year): 57 (2011)
Issue (Month): 1 (January)
risk attitude; cumulative prospect theory; experimental study;
Other versions of this item:
- Jianying Qiu & Eva-Maria Steiger, 2010. "Understanding the Two Components of Risk Attitudes: An Experimental Analysis," Jena Economic Research Papers 2010-053, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
- Jianying Qiu & Eva-Maria Steiger, 2009. "Understanding the Two Components of Risk Attitudes: An Experimental Analysis," Jena Economic Research Papers 2009-088, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gijs Kuilen, 2009. "Subjective Probability Weighting and the Discovered Preference Hypothesis," Theory and Decision, Springer, vol. 67(1), pages 1-22, July.
- Gijs van de Kuilen & Peter P. Wakker, 2011.
"The Midweight Method to Measure Attitudes Toward Risk and Ambiguity,"
INFORMS, vol. 57(3), pages 582-598, March.
- Kuilen, G. van de & Wakker, P.P., 2011. "The midweight method to measure attitudes towards risk and ambiguity," Open Access publications from Tilburg University urn:nbn:nl:ui:12-4275073, Tilburg University.
- Kuilen, G. van de & Wakker, P.P., 2011.
"The midweight method to measure attitudes towards risk and ambiguity,"
Open Access publications from Tilburg University
urn:nbn:nl:ui:12-4275073, Tilburg University.
- Gijs van de Kuilen & Peter P. Wakker, 2011. "The Midweight Method to Measure Attitudes Toward Risk and Ambiguity," Management Science, INFORMS, vol. 57(3), pages 582-598, March.
- Qiu, Jianying & Weitzel, Utz, 2013. "Experimental Evidence on Valuation and Learning with Multiple Priors," MPRA Paper 43974, University Library of Munich, Germany.
- Michał Krawczyk, 2014. "Probability weighting in different domains: the role of stakes, fungibility, and affect," Working Papers 2014-15, Faculty of Economic Sciences, University of Warsaw.
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