Probabilistic risk attitudes and local risk aversion: a paradox
Vjollca Sadiraj ()
Theory and Decision, 2014, vol. 77, issue 4, 443-454
Prominent theories of decision under risk that challenge expected utility theory model risk attitudes at least partly with transformation of probabilities. This paper shows how attributing local risk aversion to attitudes towards probabilities can produce extreme probability distortions that imply paradoxical risk aversion. Copyright Springer Science+Business Media New York 2014
Keywords: Risk aversion; Probability transformation; Calibration; Reference dependence (search for similar items in EconPapers)
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Working Paper: Probabilistic Risk Attitudes and Local Risk Aversion: a Paradox (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:kap:theord:v:77:y:2014:i:4:p:443-454
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