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Dynamic Decision Making when Risk Perception Depends on Past Experience

  • Michèle Cohen
  • Johanna Etner
  • Meglena Jeleva

    ()

The aim of the paper is to propose a preferences representation model under risk where risk perception can be past experience dependent. A first step consists in considering a one period decision problem where individual preferences are no more defined only on decisions but on pairs (decision, past experience). The obtained criterion is used in the construction of a dynamic choice model under risk. The paper ends with an illustrative example concerning insurance demand. Itappears that our model allows to explain modifications in the insurance demand behavior over time observed on the insurance markets for catastrophic risk and difficult to justify with standard models.

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File URL: http://hdl.handle.net/10.1007/s11238-007-9061-3
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Article provided by Springer in its journal Theory and Decision.

Volume (Year): 64 (2008)
Issue (Month): 2 (March)
Pages: 173-192

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Handle: RePEc:kap:theord:v:64:y:2008:i:2:p:173-192
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100341

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