Asymmetric loss utility: an analysis of decision under risk
AbstractThis 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 of the general case 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. The model is advantageous for two reasons. First, it is based on established principles of probability; second, it resolves several well- known paradoxes.
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Bibliographic InfoPaper provided by EconWPA in its series Game Theory and Information with number 0405012.
Length: 35 pages
Date of creation: 27 May 2004
Date of revision:
Note: Type of Document - pdf; pages: 35
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choice under uncertainty; non-expected utility theory; risk aversion; Allais paradox; Ellsberg paradox; St. Petersburg paradox; Equity Premium Puzzle; decision theory;
Other versions of this item:
- Alex Strashny, 2004. "Asymmetric loss utility: an analysis of decision under risk," Game Theory and Information 0401006, EconWPA.
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
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- Kahneman, Daniel & Tversky, Amos, 1979.
"Prospect Theory: An Analysis of Decision under Risk,"
Econometric Society, vol. 47(2), pages 263-91, March.
- Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
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