Understanding the Two Components of Risk Attitudes: AnExperimental Analysis

Economics and management science share the tradition of ordering risk aversionby fitting the best expected utility (EU) model with a certain utility function to in-dividual data, and then using the utility curvature for each individual as the soleindex of risk attitude. (Cumulative) Prospect theory (CPT) has demonstrated vari-ous empirical deficiencies of EU and introduced the weighting of probabilities as anadditional component to capture risk attitude. However, if utility curvature and prob-ability weighting were strongly correlated, the utility curvature in EU alone, while notproperly describing risky behavior in general, would still capture most of the varianceregarding degrees of risk aversion.[...]