Living with risk
AbstractLiving with risk can lead to anticipatory feelings such as anxiety or hopefulness. Such feelings can a¤ect the choice between lotteries that will be played out in the future - choice may be motivated not only by the (static) risks involved but also by the desire to reduce anxiety or to promote savoring. This paper provides a model of preference in a three-period setting that is axiomatic and includes a role for anticipatory feelings. It is shown that the model of preference can accommodate intuitive patterns of demand for information such as information seeking when a favorable outcome is very likely and information aversion when it is more likely that the outcome will be unfavorable. Behavioral meaning is given to statements such as "individual 1 is anxious" and "2 is more anxious than 1". Finally, the model is di¤erentiated sharply from the classic model due to Kreps and Porteus.
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Bibliographic InfoPaper provided by University of Rochester - Center for Economic Research (RCER) in its series RCER Working Papers with number 534.
Length: 31 pages
Date of creation: Feb 2007
Date of revision:
Contact details of provider:
Postal: University of Rochester, Center for Economic Research, Department of Economics, Harkness 231 Rochester, New York 14627 U.S.A.
risk; anxiety; savoring; anticipatory feelings; demand for commitment; demand for information; temporal resolution of risk; temptation;
Other versions of this item:
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-03 (All new papers)
- NEP-CBE-2007-03-03 (Cognitive & Behavioural Economics)
- NEP-UPT-2007-03-03 (Utility Models & Prospect Theory)
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