Axiomatic reference-dependence in behavior toward others and toward risk

William Neilson

Economic Theory, 2006, vol. 28, issue 3, 692 pages

Abstract: This paper considers the applicability of the standard separability axiom for both risk and other-regarding preferences, and advances arguments why separability might fail. An alternative axiom, which is immune to these arguments, leads to a preference representation that is additively separable in a reference variable and the differences between the other variables and the reference variable. For other-regarding preferences the reference variable is the decision-maker’s own payoff, and the resulting representation coincides with the Fehr-Schmidt model. For risk preferences the reference variable is initial wealth, and the resulting representation is a generalization of prospect theory. Copyright Springer-Verlag Berlin/Heidelberg 2006

Keywords: Other-regarding preferences; Risk; Separability; Axiomatic foundation; Prospect theory. (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (53)

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DOI: 10.1007/s00199-005-0643-4

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