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Asymmetric loss utility: an analysis of decision under risk

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Author Info
Alex Strashny

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Abstract

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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File URL: http://129.3.20.41/eps/game/papers/0401/0401006.pdf
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Publisher Info
Paper provided by EconWPA in its series Game Theory and Information with number 0401006.

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Length: 21 pages
Date of creation: 29 Jan 2004
Date of revision:
Handle: RePEc:wpa:wuwpga:0401006

Note: Type of Document - pdf / TeX; prepared on Win; pages: 21; figures: 3
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Web page: http://129.3.20.41

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Related research
Keywords: choice under uncertainty; non-expected utility theory; risk aversion; Allais paradox; Ellsberg paradox; St. Petersburg paradox; equity premium puzzle; decision theory;

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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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  1. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March. [Downloadable!] (restricted)
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This page was last updated on 2009-12-2.

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