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Risk Perception, Risk Attitude, and Decision: a Rank-Dependent Approach

Author

Listed:
  • Michèle Cohen

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

The classical expected utility model of decision under risk has been criticized from an experimental point of view (Allais' paradox) as well as for its restrictive lack of explanatory power. The Rank-Dependent Expected Utility model answers some of these criticisms. The decision maker is characterized by two functions: a utility function on consequences measuring preferences over sure outcomes and a probability weighting function measuring the subjective weighting of probabilities. The model allows for more diversified types of behavior: it is consistent with the behavior revealed by the Allais paradox; the decision maker could dislike risk (prefer its expectation to any lottery) without necessarily avoiding any increase in risk; diminishing marginal utility may coexist with "weak" risk-seeking attitudes; decision makers with the same utility function may differ in their choices between lotteries when they have different probability weighting functions; furthermore, the same decision maker may have different, context-dependent, subjective beliefs on events. [ABSTRACT FROM PUBLISHER]

Suggested Citation

  • Michèle Cohen, 2015. "Risk Perception, Risk Attitude, and Decision: a Rank-Dependent Approach," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00310491, HAL.
    • Handle: RePEc:hal:cesptp:halshs-00310491
    DOI: 10.1080/08898480.2013.836425
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    Cited by:

    1. Laurie Bréban & André Lapidus, 2019. "Adam Smith on lotteries: an interpretation and formal restatement," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 26(1), pages 157-197, January.
    2. Jianhua Wang & Hanyu Diao & Lulu Tou, 2019. "Research on the Influence Mechanism of Rational Consumers’ Food Safety Supervision Satisfaction," IJERPH, MDPI, vol. 16(5), pages 1-16, March.
    3. Marc-Arthur Diaye & André Lapidus & Christian Schmidt, 2021. "From Decision in Risk to Decision in Time - and Return: A Restatement of Probability Discounting," Working Papers hal-03256606, HAL.
    4. Hasibuan, Abdul Muis & Gregg, Daniel & Stringer, Randy, 2020. "Accounting for diverse risk attitudes in measures of risk perceptions: A case study of climate change risk for small-scale citrus farmers in Indonesia," Land Use Policy, Elsevier, vol. 95(C).

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