Preferences for One-Shot Resolution of Uncertainty and Allais-Type Behavior

David Dillenberger ()

MPRA Paper from University Library of Munich, Germany

Abstract: Experimental evidence suggests that individuals are more risk averse when they perceive risk gradually. We address these findings by studying a decision maker (DM) who has recursive preferences over compound lotteries and who cares about the way uncertainty is resolved over time. DM has preferences for one-shot resolution of uncertainty if he always prefers any compound lottery to be resolved in a single stage. We establish an equivalence between dynamic preferences for one-shot resolution of uncertainty and static preferences that are identified with the behavior observed in Allais-type experiments. The implications of this equivalence on preferences over information systems are examined. We define the gradual resolution premium and demonstrate its magnifying effect when combined with the usual risk premium. In an intertemporal context, preferences for one-shot resolution of uncertainty capture narrow framing.

JEL-codes: D80 D81 (search for similar items in EconPapers)
Date: 2008-04-09
New Economics Papers: this item is included in nep-cbe, nep-evo and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (51)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/8342/1/MPRA_paper_8342.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:8342

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().