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Loss‐averse preferences and portfolio choices: An extension

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  • Louis Eeckhoudt

    (LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - ULCO - Université du Littoral Côte d'Opale - Université de Lille - CNRS - Centre National de la Recherche Scientifique)

  • Anna Maria Fiori
  • Emanuela Rosazza Gianin

Abstract

In this paper we generalise existing models of loss‐averse preferences. This extension clarifies the impact of stochastic changes in risk on the optimal degree of risk taking. Our more general model highlights an intuitive link between the literature on loss‐averse behaviours and the notions of prudence and temperance recently introduced in the literature. We also stress the link between our approach and the use of VaR and CVaR as risk measures.

Suggested Citation

  • Louis Eeckhoudt & Anna Maria Fiori & Emanuela Rosazza Gianin, 2016. "Loss‐averse preferences and portfolio choices: An extension," Post-Print hal-01667394, HAL.
    • Handle: RePEc:hal:journl:hal-01667394
    DOI: 10.1016/j.ejor.2015.08.019
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    Cited by:

    1. Marcela Ibanez & Sebastian O. Schneider, 2023. "Income Risk, Precautionary Saving, and Loss Aversion – An Empirical Test," Discussion Paper Series of the Max Planck Institute for Behavioral Economics 2023_06, Max Planck Institute for Behavioral Economics.
    2. Asano, Takao & Osaki, Yusuke, 2021. "Optimal investment under ambiguous technology shocks," European Journal of Operational Research, Elsevier, vol. 293(1), pages 304-311.
    3. Liudong Chen & Bolun Xu, 2024. "A Prudent Framework for Understanding Risk-Awareness in Demand Response," Papers 2405.16356, arXiv.org, revised May 2025.
    4. Dennis W. Jansen & Liqun Liu, 2022. "Portfolio choice in the model of expected utility with a safety-first component," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 45(1), pages 187-207, June.
    5. Fang, Yi & Post, Thierry, 2017. "Higher-degree stochastic dominance optimality and efficiency," European Journal of Operational Research, Elsevier, vol. 261(3), pages 984-993.
    6. Inmaculada Rodríguez-Puerta & Alberto A. Álvarez-López, 2022. "A model for the optimal selection of lenders," Annals of Operations Research, Springer, vol. 313(2), pages 1269-1284, June.
    7. Wang, Jianli & Liu, Liqun & Neilson, William S., 2020. "The participation puzzle with reference-dependent expected utility preferences," Insurance: Mathematics and Economics, Elsevier, vol. 93(C), pages 278-287.
    8. Hongxia Wang & Duc Khuong Nguyen & Xiong Xiong & Peng-Fei Dai, 2025. "Portfolio choice under loss aversion and diminishing sensitivity: a theoretical extension," Annals of Operations Research, Springer, vol. 347(1), pages 69-85, April.
    9. Borgonovo, E. & Cappelli, V. & Maccheroni, F. & Marinacci, M., 2018. "Risk analysis and decision theory: A bridge," European Journal of Operational Research, Elsevier, vol. 264(1), pages 280-293.
    10. Claudio A. Bonilla & Marcos Vergara, 2021. "Risk aversion, downside risk aversion, and the transition to entrepreneurship," Theory and Decision, Springer, vol. 91(1), pages 123-133, July.
    11. Bonilla, Claudio A. & Fica, Diego, 2022. "Loss aversion and risky entrepreneurship," Finance Research Letters, Elsevier, vol. 48(C).
    12. Claudio A. Bonilla & Marcos Vergara & Richard Watt, 2019. "New Results on Entrepreneurship and Risk," Working Papers in Economics 19/20, University of Canterbury, Department of Economics and Finance.
    13. Louis Eeckhoudt & Anna Maria Fiori & Emanuela Rosazza Gianin, 2018. "Risk Aversion, Loss Aversion, and the Demand for Insurance," Risks, MDPI, vol. 6(2), pages 1-19, May.
    14. Takao Asano & Yusuke Osaki, 2020. "Portfolio allocation problems between risky and ambiguous assets," Annals of Operations Research, Springer, vol. 284(1), pages 63-79, January.
    15. Claudio A. Bonilla & Marcos Vergara & Richard Watt, 2022. "Changes in risk and entrepreneurship," Risk Management, Palgrave Macmillan, vol. 24(4), pages 367-385, December.

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