Are Universal Preferences Possible? Calibration Results for Non-Expected Utility Theories

Zvi Safra and Uzi Segal
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Zvi Safra: Tel Aviv University

No 633, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: Rabin proved that a low level of risk aversion with respect to small gambles leads to a high, and absurd, level of risk aversion with respect to large gambles. Rabin's arguments strongly depend on expected utility theory, but we show that similar arguments apply to almost all non-expected utility theories and even to theories dealing with uncertainty. The set of restrictions needed in order to avoid such absurd behavior may suggest that the assumption of universality of preferences over final wealth is too strong.

Pages: 39 pages
Date: 2005-12-05
New Economics Papers: this item is included in nep-cbe and nep-upt
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Citations: View citations in EconPapers (3)

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