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Some Observations On The Nature Of Risk Aversion

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  • KARNI, E.
  • SAFRA, Z.

Abstract

Some violations of the expected utility hypotheses were explicated by Machina (1982) in a more general framework using the notion of local utility function and postulating that: (a) each local utility function displays decreasing absolute risk aversion and (b) the measure of absolute risk aversion is everywhere nondecreasing with respect to shifts towards first-order stochasticallY dominating distributions. In this paper we show that the evidence produced in the course of testing the "preference reversal" phenomenon, in conjunction with the assumption that individuals are disinclined to participate in fair symmetric bets, lends support to Machina's hypotheses.
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Suggested Citation

  • Karni, E. & Safra, Z., 1988. "Some Observations On The Nature Of Risk Aversion," Papers 20-88, Tel Aviv.
    • Handle: RePEc:fth:teavfo:20-88
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    Cited by:

    1. Karni, Edi & Schmeidler, David, 1990. "Utility Theory and Uncertainty," Foerder Institute for Economic Research Working Papers 275480, Tel-Aviv University > Foerder Institute for Economic Research.

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    Keywords

    risk ; economic theory;

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