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An Empirical Investigation of the Assumptions of Risk-Value Models

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  • John Butler
  • James Dyer

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  • Jiammin Jia
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    Abstract

    Do participants make decisions consistent with risk-value tradeoffs? One hundred and five undergraduate business students made risk and preference judgments about lottery pairs in a series of paper surveys. The data indicate that the participants’ responses were generally consistent with the key assumptions of risk-value models, but that some extensions of the theory would improve this consistency. In particular, we find that modifying the risk assumptions of the risk-value theory so they are consistent the concept of the reflection of the risk attitude in the domains of gains and losses increases the agreement between the theory and the participants’ responses. Copyright Springer Science + Business Media, Inc. 2005

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    File URL: http://hdl.handle.net/10.1007/s11166-005-6562-8
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    Bibliographic Info

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

    Volume (Year): 30 (2005)
    Issue (Month): 2 (January)
    Pages: 133-156

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    Handle: RePEc:kap:jrisku:v:30:y:2005:i:2:p:133-156

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    Web page: http://www.springerlink.com/link.asp?id=100299

    Related research

    Keywords: risk measures; risk-value models; utility theory;

    References

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    1. Harless, David W & Camerer, Colin F, 1994. "The Predictive Utility of Generalized Expected Utility Theories," Econometrica, Econometric Society, vol. 62(6), pages 1251-89, November.
    2. Jia, Jianmin & Dyer, James S & Butler, John C, 2001. " Generalized Disappointment Models," Journal of Risk and Uncertainty, Springer, vol. 22(1), pages 59-78, January.
    3. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
    4. Loomes, Graham & Sugden, Robert, 1986. "Disappointment and Dynamic Consistency in Choice under Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 53(2), pages 271-82, April.
    5. Sarin, Rakesh K. & Weber, Martin, 1993. "Risk-value models," European Journal of Operational Research, Elsevier, vol. 70(2), pages 135-149, October.
    6. Elke U. Weber & Richard A. Milliman, 1997. "Perceived Risk Attitudes: Relating Risk Perception to Risky Choice," Management Science, INFORMS, vol. 43(2), pages 123-144, February.
    7. John W. Payne & Dan J. Laughhunn & Roy Crum, 1980. "Translation of Gambles and Aspiration Level Effects in Risky Choice Behavior," Management Science, INFORMS, vol. 26(10), pages 1039-1060, October.
    8. Keller, L. Robin & Sarin, Rakesh K. & Weber, Martin, 1986. "Empirical investigation of some properties of the perceived riskiness of gambles," Organizational Behavior and Human Decision Processes, Elsevier, vol. 38(1), pages 114-130, August.
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