Probabilistic Risk Attitudes and Local Risk Aversion: a Paradox

Prominent theories of decision under risk that challenge expected utility theory model risk attitudes at least partly with transformation of probabilities. This paper shows how attributing local risk aversion (partly or wholly) to attitudes towards probabilities can produce extreme probability distortions that imply paradoxical risk aversion.

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Year of publication:	2012-05
Authors:	Sadiraj, Vjollca
Institutions:	Department of Economics, Andrew Young School of Policy Studies
Subject:	risk aversion \| probability transformation \| calibration

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Extent:	application/pdf
Series:	Experimental Economics Center Working Paper Series.
Type of publication:	Book / Working Paper
Notes:	Number 2012-07 1 pages long
Classification:	D81 - Criteria for Decision-Making under Risk and Uncertainty
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010548104