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Calibration Results for Betweenness Functionals

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Author Info
Zvi Safra (Tel Aviv University)
Uzi Segal () (Boston College)

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Abstract

A reasonable level of risk aversion with respect to small gambles leads to a high, and absurd, level of risk aversion with respect to large gambles. This was demonstrated by Rabin for expected utility theory. Later, Safra and Segal extended this result by showing that similar arguments apply to almost all non-expected utility theories, provided they are Gateaux differentiable. In this paper we drop the differentiability assumption and by restricting attention to betweenness theories we show that much weaker conditions are sufficient for the derivation of similar calibration results.

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Publisher Info
Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 683.

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Length: 15 pages
Date of creation: 18 May 2008
Date of revision:
Handle: RePEc:boc:bocoec:683

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Related research
Keywords: risk aversion; betweenness;

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References listed on IDEAS
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  1. Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1996. "Income Risk, Borrowing Constraints, and Portfolio Choice," American Economic Review, American Economic Association, vol. 86(1), pages 158-72, March. [Downloadable!] (restricted)
    Other versions:
  2. Fishburn, Peter C., 1983. "Transitive measurable utility," Journal of Economic Theory, Elsevier, vol. 31(2), pages 293-317, December. [Downloadable!] (restricted)
  3. Chew, S H & Epstein, Larry G & Segal, U, 1991. "Mixture Symmetry and Quadratic Utility," Econometrica, Econometric Society, vol. 59(1), pages 139-63, January. [Downloadable!] (restricted)
  4. Dean P. Foster & Sergiu Hart, 2007. "An Operational Measure of Riskiness," Discussion Paper Series dp454, Center for Rationality and Interactive Decision Theory, Hebrew University, Jerusalem. [Downloadable!]
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  5. Dekel, Eddie, 1986. "An axiomatic characterization of preferences under uncertainty: Weakening the independence axiom," Journal of Economic Theory, Elsevier, vol. 40(2), pages 304-318, December. [Downloadable!] (restricted)
  6. Machina, Mark J, 1982. ""Expected Utility" Analysis without the Independence Axiom," Econometrica, Econometric Society, vol. 50(2), pages 277-323, March. [Downloadable!] (restricted)
  7. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December. [Downloadable!] (restricted)
  8. Safra, Zvi & Segal, Uzi, 1998. "Constant Risk Aversion," Journal of Economic Theory, Elsevier, vol. 83(1), pages 19-42, November. [Downloadable!] (restricted)
  9. Zvi Safra & Uzi Segal, 2008. "Calibration Results for Non-Expected Utility Theories," Boston College Working Papers in Economics 682, Boston College Department of Economics. [Downloadable!]
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  10. Gul, Faruk, 1991. "A Theory of Disappointment Aversion," Econometrica, Econometric Society, vol. 59(3), pages 667-86, May. [Downloadable!] (restricted)
  11. Guiso, Luigi & Paiella, Monica, 2001. "Risk Aversion, Wealth and Background Risk," CEPR Discussion Papers 2728, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  12. Chew, Soo Hong, 1983. "A Generalization of the Quasilinear Mean with Applications to the Measurement of Income Inequality and Decision Theory Resolving the Allais Paradox," Econometrica, Econometric Society, vol. 51(4), pages 1065-92, July. [Downloadable!] (restricted)
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