Comparative Risk Sensitivity with Reference-Dependent Preferences.

Experimental evidence suggests that individuals are risk averse over gains and risk seeking over losses (i.e., they have S-shaped utility functions in an expected utility setting) and that they are loss averse. Furthermore, the evidence leads to a single definition of S-shaped utility, but it has led to several alternative specifications of loss aversion. This paper characterizes the relations "more S-shaped than" and "more loss averse than" for a utility function, and in so doing arrives at a new definition of loss aversion based on average instead of marginal utility. Copyright 2002 by Kluwer Academic Publishers