Although the link between risk aversion and diminishing marginal utility of wealth is academically well established, theoretical discussions concerning its empirical validity remain. The presented, review-type paper aims to briefly examine theoretical roots responsible for the different views on...

Most theories of risky choice postulate that a decision maker maximizes the expectation of a Bernoulli (or utility or similar) function. We tour 60 years of empirical search and conclude that no such functions have yet been found that are useful for out-of-sample prediction. Nor do we find...

How should you choose between risky options? This paper proposes reckoning, defined as the expectation for the lower of two draws from a variable's distribution. In symbols this is E[min(X_1,X_2)]. This is a special case of rank-dependent expected utility and provides a tractable alternative to...

Downside deviation, semivariance, or the second lower partial moment are different names for the same risk measure, proposed in the literature for capturing the downside risk of investment decisions. This paper analyzes multiperiod decision making under such a risk measure, and finds that a...

This paper focuses on the attitude of non-professional investors towards financial losses and their decisions on wealth allocation, and how these change subject to behavioral factors. Our contribution concerns the integration of behavioral elements into the classic portfolio optimization....

This paper presents a new two-parameter probability weighting function for Tversky and Kahneman (1992) cumulative prospect theory as well as its special cases — Quiggin (1981) rank-dependent utility and Yaari (1987) dual model. The proposed probability weighting function can be inverse...

Most decisions concerning (self-)insurance and self-protection have to be taken in situations in which a) the effort exerted precedes the moment uncertainty realises, and b) the probabilities of future states of the world are not perfectly known. By integrating these two characteristics in a...

In this paper, expected utility, defined by a Taylor series expansion around expected wealth, is maximized. The coefficient of relative risk aversion (CRRA) that is commensurate with a 100% investment in the risky asset is simulated. The following parameters are varied: the riskless return, the...