We consider the risk premium demanded by a decision maker in order to be indifferent between obtaining a new level of wealth with certainty, or to participate in a lottery which either results in unchanged wealth or an even higher level than what can be obtained with certainty. We study...

This paper proposes a new decision theory of how individuals make random errors when they compute the expected utility of risky lotteries. When distorted by errors, the expected utility of a lottery never exceeds (falls below) the utility of the highest (lowest) outcome. This assumption implies...

Rabin (Econometrica 68(5):1281–1292, <CitationRef CitationID="CR19">2000</CitationRef>) argues that, under expected-utility, observed risk aversion over modest stakes implies extremely high risk aversion over large stakes. Cox and Sadiraj (Games Econom. Behav. 56(1):45–60, <CitationRef CitationID="CR5">2006</CitationRef>) have replied that this is a problem of expected-utility...</citationref></citationref>

Robin Pope argues that Kotlikoff is right to favor shifting payroll taxes to sales taxes only Kotlikoff fails to mention all the benefits that would be obtained by the shift. One of these benefits would be aiding employment by shifting the burden of risk bearing from firms to governments that...

A major virtue of von Neumann-Morgenstern utilities, for example, in the theory of general financial equilibrium (GFE), is that they ensure intertemporal consistency: consumption-portfolio plans (for the future) are in fact executed (in the future) — assuming that there is perfect foresight...

Empirical evidence suggests that decision makers often weight successive additional units of a valued attribute or monetary endowment unequally, so that their utility functions are intrinsically nonlinear or irregularly shaped. Although the analyst may impose various functional specifications...