Comparative Risk Sensitivity with Reference-Dependent Preferences

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Comparative Risk Sensitivity with Reference-Dependent Preferences

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Neilson, William S

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William Neilson

Abstract

Experimental evidence suggests that individuals are risk averse over gains and risk seeking over losses (i.e., they have S-shaped utility functions in an expected utility setting) and that they are loss averse. Furthermore, the evidence leads to a single definition of S-shaped utility, but it has led to several alternative specifications of loss aversion. This paper characterizes the relations "more S-shaped than" and "more loss averse than" for a utility function, and in so doing arrives at a new definition of loss aversion based on average instead of marginal utility. Copyright 2002 by Kluwer Academic Publishers

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Article provided by Springer in its journal Journal of Risk and Uncertainty.

Volume (Year): 24 (2002)
Issue (Month): 2 (March)
Pages: 131-42
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Handle: RePEc:kap:jrisku:v:24:y:2002:i:2:p:131-42

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Peter Brooks & Horst Zank, 2005. "Loss Averse Behavior," Journal of Risk and Uncertainty, Springer, vol. 31(3), pages 301-325, December. [Downloadable!] (restricted)
Marco LiCalzi & Annamaria Sorato, 2003. "The Pearson system of utility functions," Game Theory and Information 0311002, EconWPA. [Downloadable!]
Other versions:
- LiCalzi, Marco & Sorato, Annamaria, 2006. "The Pearson system of utility functions," European Journal of Operational Research, Elsevier, vol. 172(2), pages 560-573, July. [Downloadable!] (restricted)
Lorenz Goette & David Huffman, 2005. "Affect as a Source of Motivation in the Workplace: A New Model of Labor Supply, and New Field Evidence on Income Targeting and the Goal Gradient," IZA Discussion Papers 1890, Institute for the Study of Labor (IZA). [Downloadable!]
Bernard, Carole & Ghossoub, Mario, 2009. "Static Portfolio Choice under Cumulative Prospect Theory," MPRA Paper 15446, University Library of Munich, Germany, revised 29 Apr 2009. [Downloadable!]
Ulrich Schmidt & Horst Zank, 2005. "What is Loss Aversion?," Journal of Risk and Uncertainty, Springer, vol. 30(2), pages 157-167, January. [Downloadable!] (restricted)
Other versions:
- U Schmidt & H Zank, 2002. "What is Loss Aversion?," The School of Economics Discussion Paper Series 0209, Economics, The University of Manchester. [Downloadable!]
de Farias Neto, Joao Jose, 2008. "S-shaped utility, subprime crash and the black swan," MPRA Paper 12122, University Library of Munich, Germany. [Downloadable!]
Horst Zank, 2007. "On the Paradigm of Loss Aversion," The School of Economics Discussion Paper Series 0710, Economics, The University of Manchester. [Downloadable!]
P Brooks & H Zank, 2004. "Attitudes on Gain and Loss Lotteries: A Simple Experiment," The School of Economics Discussion Paper Series 0402, Economics, The University of Manchester. [Downloadable!]

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