Uncertain risk aversion

Jian Zhou, Yuanyuan Liu (), Xiaoxia Zhang, Xin Gu and Di Wang
Additional contact information
Jian Zhou: Shanghai University
Yuanyuan Liu: Shanghai University
Xiaoxia Zhang: University of Sydney
Xin Gu: University of Mannheim
Di Wang: The State University of New Jersey

Journal of Intelligent Manufacturing, 2017, vol. 28, issue 3, No 14, 615-624

Abstract: Abstract This paper discusses the risk aversion within the framework of the uncertainty theory (Liu in Uncertainty theory: A branch of mathematics for modeling human uncertainty. Springer, Berlin, 2010b), and introduces the notions of uncertain expected utility and uncertain risk premium. In terms of the Arrow–Pratt index, an uncertain version of Pratt’s theorem is proved, which offers an effective way to make comparisons between different individuals’ risk-averse attitudes. We suggest that uncertain risk aversion can be used to measure human’s risk-averse attitudes when uncertainty exists due to lack of the observed data, just as probabilistic risk aversion when sufficient data can be obtained. Uncertain risk aversion provides an alternative method to compare the risk aversions between individuals under uncertain situations.

Keywords: Uncertainty theory; Risk aversion; Risk premium; Pratt’s theorem (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s10845-014-1013-5

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