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Risk Aversion

Author

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  • Pavlo R. Blavatskyy

Abstract

Risk aversion is traditionally defined in the context of lotteries over monetary payoffs. This paper extends the notion of risk aversion to a more general setup where outcomes (consequences) may not be measurable in monetary terms and people may have fuzzy preferences over lotteries, i.e. they may choose in a probabilistic manner. The paper considers comparative risk aversion within neoclassical expected utility theory, a constant error/tremble model and a strong utility model of probabilistic choice (which includes the Fechner model and the Luce choice model as special cases). The paper also provides a new definition of relative riskiness of lotteries.

Suggested Citation

  • Pavlo R. Blavatskyy, 2008. "Risk Aversion," IEW - Working Papers 370, Institute for Empirical Research in Economics - University of Zurich.
  • Handle: RePEc:zur:iewwpx:370
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    File URL: http://www.econ.uzh.ch/static/wp_iew/iewwp370.pdf
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    Cited by:

    1. Blavatskyy, Pavlo R., 2011. "Probabilistic risk aversion with an arbitrary outcome set," Economics Letters, Elsevier, vol. 112(1), pages 34-37, July.

    More about this item

    Keywords

    Risk aversion; more risk averse than; riskiness; probabilistic choice; expected utility theory; Fechner model; Luce choice model;

    JEL classification:

    • D00 - Microeconomics - - General - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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