This paper develops a utility model for evaluating lotteries. In estimating utility, risk averse people use an asymmetric loss function. Expected utility is seen as a special case that is a good approximation in some cases. The model resolves several paradoxes and makes easily falsifiable predictions. When used in hypothesis testing, the model allows researchers to directly specify their attitudes toward risk.
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Find related papers by JEL classification: D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
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