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Risk Aversion

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  • Pavlo R. Blavatskyy
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    Abstract

    Risk aversion is traditionally defined in the context of lotteries over monetary payoffs. This paper extends the notion of risk aversion to a more general setup where outcomes (consequences) may not be measurable in monetary terms and people may have fuzzy preferences over lotteries, i.e. they may choose in a probabilistic manner. The paper considers comparative risk aversion within neoclassical expected utility theory, a constant error/tremble model and a strong utility model of probabilistic choice (which includes the Fechner model and the Luce choice model as special cases). The paper also provides a new definition of relative riskiness of lotteries.

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    File URL: http://www.iew.uzh.ch/wp/iewwp370.pdf
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    Bibliographic Info

    Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 370.

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    Date of creation: Apr 2008
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    Handle: RePEc:zur:iewwpx:370

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    Related research

    Keywords: Risk aversion; more risk averse than; riskiness; probabilistic choice; expected utility theory; Fechner model; Luce choice model;

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    Cited by:
    1. Blavatskyy, Pavlo R., 2011. "Probabilistic risk aversion with an arbitrary outcome set," Economics Letters, Elsevier, vol. 112(1), pages 34-37, July.

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