Valuing bets and hedges: Implications for the construct of risk preference

Shane Frederick, Amanda Levis, Steven Malliaris and Andrew Meyer

Judgment and Decision Making, 2018, vol. 13, issue 6, 501-508

Abstract: Risk attitudes implied by valuations of risk-increasing assets depart markedly from those implied by valuations of risk-reducing assets. For instance, many are unwilling to pay the expected value for a risky asset or for its perfect hedge. Although nearly every theory of risk preference (and logic) demands a negative correlation between valuations of bets and hedges, we observe positive correlations. This inconsistency is difficult to expunge.

Date: 2018
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