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Pure Risk

Author

Listed:
  • David Dillenberger

    (University of Pennsylvania)

  • Jay Lu

    (University of California, Los Angeles)

Abstract

We introduce a behavioral notion of domain-specific risk aversion that separates attitudes toward risk from deterministic utility: an agent is more pure risk averse in one domain than in another if, for prizes that are indifferent under certainty, he is more averse to risk in the former domain than in the latter. We develop a model that goes beyond expected utility by allowing risk attitudes to vary across domains, while preserving expected utility within each domain. The domains are subjective and need not be specified in advance; they are identified from choice behavior. We establish uniqueness of the model’s parameters and provide an axiomatic characterization.

Suggested Citation

  • David Dillenberger & Jay Lu, 2026. "Pure Risk," PIER Working Paper Archive 26-011, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    • Handle: RePEc:pen:papers:26-011
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    Keywords

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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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