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Rethinking Risk Attitude: Aspiration as Pure Risk

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  • Greg Davies

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Abstract

There exists no completely satisfactory theory of risk attitude in current normative decision theories. Existing notions confound attitudes to pure risk with unrelated psychological factors such as strength of preference for certain outcomes, and probability weighting. In addition traditional measures of risk attitude frequently cannot be applied to non-numerical consequences, and are not psychologically intuitive. I develop Pure Risk theory which resolves these problems – it is consistent with existing normative theories, and both internalises and generalises the intuitive notion of risk being related to the probability of not achieving one’s aspirations. Existing models which ignore pure risk attitudes may be misspecified, and effects hitherto modelled as loss aversion or utility curvature may be due instead to Pure Risk attitudes. Copyright Springer 2006

Suggested Citation

  • Greg Davies, 2006. "Rethinking Risk Attitude: Aspiration as Pure Risk," Theory and Decision, Springer, vol. 61(2), pages 159-190, September.
  • Handle: RePEc:kap:theord:v:61:y:2006:i:2:p:159-190
    DOI: 10.1007/s11238-006-0007-y
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    File URL: http://hdl.handle.net/10.1007/s11238-006-0007-y
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    References listed on IDEAS

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    1. Davies, G.B. & Satchell, S.E., 2004. "The Behavioural Components of Risk Aversion," Cambridge Working Papers in Economics 0458, Faculty of Economics, University of Cambridge.
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