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Dynamic Decision Making when Risk Perception Depends on Past Experience

Author

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  • Michèle Cohen

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Johanna Etner

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, LIRAES - EA 4470 - Laboratoire Interdisciplinaire de Recherche Appliquée en Economie de la Santé - UPD5 - Université Paris Descartes - Paris 5)

  • Meglena Jeleva

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, GAINS - Groupe d'Analyse des Itinéraires et des Niveaux Salariaux - UM - Le Mans Université)

Abstract

The aim of the paper is to propose a preferences representation model under risk where risk perception can be past experience dependent. A first step consists in considering a one period decision problem where individual preferences are no more defined only on decisions but on pairs (decision, past experience). The obtained criterion is used in the construction of a dynamic choice model under risk. The paper ends with an illustrative example concerning insurance demand. Itappears that our model allows to explain modifications in the insurance demand behavior over time observed on the insurance markets for catastrophic risk and difficult to justify with standard models.

Suggested Citation

  • Michèle Cohen & Johanna Etner & Meglena Jeleva, 2008. "Dynamic Decision Making when Risk Perception Depends on Past Experience," Post-Print halshs-00211942, HAL.
    • Handle: RePEc:hal:journl:halshs-00211942
    DOI: 10.1007/s11238-007-9061-3
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00211942
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    References listed on IDEAS

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    1. Robin Cubitt & Maria Ruiz-Martos & Chris Starmer, 2012. "Are bygones bygones?," Theory and Decision, Springer, vol. 73(2), pages 185-202, August.
      • Robin Cubitt & Maria Ruiz-Martos & Chris Starmer, 2005. "Are bygones bygones?," Discussion Papers 2005-21, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
      • Robin Cubitt & Maria Ruiz-Martos & Chris Starmer, 2010. "Are bygones bygones?," Discussion Papers 2010-01, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
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    4. Éric Langlais, 2010. "Les criminels aiment-ils le risque ?," Revue économique, Presses de Sciences-Po, vol. 61(2), pages 263-280.
    5. Shi-jie Jiang & Feiyun Xiang & Iris Yang, 2023. "Effect of Prevention Focus on the Relationships Among Driving Accident History, Risk Perception, and Consumers’ Automobile Insurance Coverage Decisions," SAGE Open, , vol. 13(3), pages 21582440231, July.
    6. Arvid Hoffmann & Sam Henry & Nikos Kalogeras, 2013. "Aspirations as reference points: an experimental investigation of risk behavior over time," Theory and Decision, Springer, vol. 75(2), pages 193-210, August.
    7. Robin Cubitt & Maria Ruiz-Martos & Chris Starmer, 2012. "Are bygones bygones?," Theory and Decision, Springer, vol. 73(2), pages 185-202, August.
      • Robin Cubitt & Maria Ruiz-Martos & Chris Starmer, 2005. "Are bygones bygones?," Discussion Papers 2005-21, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
      • Robin Cubitt & Maria Ruiz-Martos & Chris Starmer, 2010. "Are bygones bygones?," Discussion Papers 2010-01, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
      • Robin Cubitt & Maria Ruiz-Martos & Chris Starmer, 2005. "Are bygones bygones?," Discussion Papers 2005-21, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
      • Robin Cubitt & Maria Ruiz-Martos & Chris Starmer, 2010. "Are bygones bygones?," Discussion Papers 2010-01, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    8. Enn Lun Yong, 2019. "Unemployment and the European Union, 2000–2017: structural exploration of distant past economic experience and future prosperity," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 8(1), pages 1-21, December.
    9. Rapp, Thomas, 2014. "Patients' diagnosis decisions in Alzheimer's disease: The influence of family factors," Social Science & Medicine, Elsevier, vol. 118(C), pages 9-16.
    10. Joyita Banerji & Kaushik Kundu & Parveen Ahmed Alam, 2023. "The Impact of Behavioral Biases on Individuals’ Financial Choices under Uncertainty: An Empirical Approach," Business Perspectives and Research, , vol. 11(3), pages 401-424, September.
    11. Mich�le Cohen, 2015. "Risk Perception, Risk Attitude, and Decision: A Rank-Dependent Analysis," Mathematical Population Studies, Taylor & Francis Journals, vol. 22(1), pages 53-70, March.
    12. Kvaløy, Ola & Eriksen, Kristoffer & Luzuriaga , Miguel, 2014. "Risk-taking with Other People’s Money," UiS Working Papers in Economics and Finance 2014/21, University of Stavanger.
    13. Yuhui Ruan & Yaqi Dai & Demi Zhu, 2022. "Risk perceptions and risk‐averse attitude influenced older patients' first‐diagnosis‐seeking behaviour at tertiary hospitals," International Journal of Health Planning and Management, Wiley Blackwell, vol. 37(5), pages 2710-2726, September.
    14. Osberghaus, Daniel & Reif, Christiane, 2021. "How do different compensation schemes and loss experience affect insurance decisions? Experimental evidence from two independent and heterogeneous samples," Ecological Economics, Elsevier, vol. 187(C).
    15. Alló, M. & Loureiro, M.L., 2020. "Assessing preferences for wildfire prevention policies in Spain," Forest Policy and Economics, Elsevier, vol. 115(C).
    16. Johanna Etner & Meglena Jeleva, 2013. "Risk Perception, Prevention And Diagnostic Tests," Health Economics, John Wiley & Sons, Ltd., vol. 22(2), pages 144-156, February.
    17. Kreye, M.E. & Goh, Y.M. & Newnes, L.B. & Goodwin, P., 2012. "Approaches to displaying information to assist decisions under uncertainty," Omega, Elsevier, vol. 40(6), pages 682-692.
    18. Eitan, Avri & Herman, Lior & Fischhendler, Itay & Rosen, Gillad, 2019. "Community–private sector partnerships in renewable energy," Renewable and Sustainable Energy Reviews, Elsevier, vol. 105(C), pages 95-104.
    19. Harvey, Michael & Griffith, David & Kiessling, Tim & Moeller, Miriam, 2011. "A multi-level model of global decision-making: Developing a composite global frame-of-reference," Journal of World Business, Elsevier, vol. 46(2), pages 177-184, April.
    20. Lotte Yanore & Jaap Sok & Alfons Oude Lansink, 2023. "Anticipate, wait or don't invest? The strategic net present value approach to study expansion decisions under policy uncertainty," Agribusiness, John Wiley & Sons, Ltd., vol. 39(2), pages 535-548, March.
    21. Michèle Cohen, 2008. "Risk Perception, Risk Attitude and Decision : a Rank-Dependent Approach," Post-Print halshs-00348810, HAL.

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