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Outside options and risk attitude

Author

Listed:
  • Gregorio Curello
  • Ludvig Sinander
  • Mark Whitmeyer

Abstract

We uncover a close link between outside options and risk attitude: when a decision-maker gains access to an outside option, her behaviour becomes less risk-averse, and conversely, any observed decrease of risk-aversion can be explained by an outside option having been made available. We characterise the comparative statics of risk-aversion, delineating how effective risk attitude (i.e. actual choice among risky prospects) varies with the outside option and with the decision-maker's 'true' risk attitude. We prove that outside options are special: among transformations of a decision problem, those that amount to adding an outside option are the only ones that always reduce risk-aversion.

Suggested Citation

  • Gregorio Curello & Ludvig Sinander & Mark Whitmeyer, 2025. "Outside options and risk attitude," Papers 2509.14732, arXiv.org.
    • Handle: RePEc:arx:papers:2509.14732
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    References listed on IDEAS

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