Calibration without reduction for non-expected utility
David Freeman ()
Journal of Economic Theory, 2015, vol. 158, issue PA, 21-32
Calibration results in Rabin (2000) and Safra and Segal (2008, 2009) suggest that both expected and non-expected utility theories cannot produce non-negligible risk aversion over small stakes without producing implausible risk aversion over large stakes. This paper provides calibration results for recursive non-expected utility theories that relax the Reduction of Compound Lotteries axiom (as in Segal, 1990). These calibration results imply that a broad class of non-expected utility theories can accommodate both small and large stakes risk aversion, even for a decision-maker who faces background risk.
Keywords: Risk aversion; Calibration; Non-expected utility theories; Recursive preferences (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
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Working Paper: Calibration without Reduction for Non-Expected Utility (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:158:y:2015:i:pa:p:21-32
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