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Asymmetric loss utility: an analysis of decision under risk

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Author Info

  • Alex Strashny

    (University of California, Irvine)

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 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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File URL: http://128.118.178.162/eps/game/papers/0405/0405012.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Game Theory and Information with number 0405012.

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Length: 35 pages
Date of creation: 27 May 2004
Date of revision:
Handle: RePEc:wpa:wuwpga:0405012

Note: Type of Document - pdf; pages: 35
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Web page: http://128.118.178.162

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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  1. 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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