Representing Risk Preferences in Expected Utility Based Decision Models
The application and estimation of expected utility based decision models would benefit from having additional simple and flexible functional forms to represent risk preferences. The literature so far has provided these functional forms for the utility function itself. This work shows that functional forms for the marginal utility function are as useful, are easier to provide, and can represent a larger set of risk preferences. Several functional forms for marginal utility are suggested, and how they can be used is discussed. These marginal utility functions represent risk preferences that cannot be represented by any functional form for the utility function.
|Date of creation:||2007|
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