AbstractRisk 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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Bibliographic InfoPaper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 370.
Date of creation: Apr 2008
Date of revision:
Risk aversion; more risk averse than; riskiness; probabilistic choice; expected utility theory; Fechner model; Luce choice model;
Find related papers by JEL classification:
- D00 - Microeconomics - - General - - - General
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-05-10 (All new papers)
- NEP-CBA-2008-05-10 (Central Banking)
- NEP-CBE-2008-05-10 (Cognitive & Behavioural Economics)
- NEP-DCM-2008-05-10 (Discrete Choice Models)
- NEP-UPT-2008-05-10 (Utility Models & Prospect Theory)
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- 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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