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Risk Aversion in Quiggin and Yaari's Rank-Order Model of Choice under Uncertainty

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  • Roell, Ailsa A

Abstract

This paper studies the rank-dependent model of choice under uncertainty proposed by J. Quiggin in 1982 and elaborated by M. E. Yaari in 1984. First, a rigorous axiomatic foundation for the model is provided. A very close analogy with expected utility theory is drawn permitting a considerably simplified treatment. Risk aversion and its measurement are then studied; two characterizations, one weaker and one stronger, are presented in addition to the one considered by Yaari. Lastly, risk aversion and other properties of th model are related to empirically observed departures from expected utility maximizing behavior. Copyright 1987 by Royal Economic Society.

Suggested Citation

  • Roell, Ailsa A, 1987. "Risk Aversion in Quiggin and Yaari's Rank-Order Model of Choice under Uncertainty," Economic Journal, Royal Economic Society, vol. 97(388a), pages 143-159, Supplemen.
  • Handle: RePEc:ecj:econjl:v:97:y:1987:i:388a:p:143-59
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    Cited by:

    1. Simone Cerreia‐Vioglio & David Dillenberger & Pietro Ortoleva, 2015. "Cautious Expected Utility and the Certainty Effect," Econometrica, Econometric Society, vol. 83, pages 693-728, March.
    2. Deffains, Bruno & Langlais, Eric, 2008. "Legal Interpretative Process and Litigants’ Cognitive Biases," MPRA Paper 14370, University Library of Munich, Germany.
    3. Diecidue, Enrico & Schmidt, Ulrich & Zank, Horst, 2009. "Parametric weighting functions," Journal of Economic Theory, Elsevier, vol. 144(3), pages 1102-1118, May.
    4. Éric Langlais, 2008. "Indemnisation des préjudices et fréquence des procès en présence d'une asymétrie d'information sur l'aversion au risque des parties," Recherches économiques de Louvain, De Boeck Université, vol. 74(2), pages 191-218.
    5. Langlais, Eric, 2010. "Safety and the Allocation of Costs in Large Accidents," MPRA Paper 25710, University Library of Munich, Germany.
    6. von Widekind, Sven, 2011. "Evolution of non-expected utility preferences," Center for Mathematical Economics Working Papers 370, Center for Mathematical Economics, Bielefeld University.
    7. Machina, Mark J, 2000. "Payoff Kinks in Preferences Over Lotteries," University of California at San Diego, Economics Working Paper Series qt7vn7d2hs, Department of Economics, UC San Diego.
    8. Johanna Etner & Meglena Jeleva & Pierre-Andre Jouvet, 2009. "Pessimism Or Optimism: A Justification To Voluntary Contributions Toward Environmental Quality ," Australian Economic Papers, Wiley Blackwell, vol. 48(4), pages 308-319, December.
    9. Mario Brandtner, 2016. "“Spectral Risk Measures: Properties and Limitations”: Comment on Dowd, Cotter, and Sorwar," Journal of Financial Services Research, Springer;Western Finance Association, vol. 49(1), pages 121-131, February.
    10. Ryan, Matthew J., 2006. "Risk aversion in RDEU," Journal of Mathematical Economics, Elsevier, vol. 42(6), pages 675-697, September.
    11. Hui Huang & Shunming Zhang, 2011. "The Distorted Theory of Rank-Dependent Expected Utility," Annals of Economics and Finance, Society for AEF, vol. 12(2), pages 233-263, November.
    12. Grechuk, Bogdan & Zabarankin, Michael, 2014. "Inverse portfolio problem with mean-deviation model," European Journal of Operational Research, Elsevier, vol. 234(2), pages 481-490.
    13. Brandtner, Mario & Kürsten, Wolfgang, 2015. "Decision making with Expected Shortfall and spectral risk measures: The problem of comparative risk aversion," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 268-280.

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