Some Observations on the Nature of Risk Aversion

Edi Karni and Zvi Safra

No 275445, Foerder Institute for Economic Research Working Papers from Tel-Aviv University > Foerder Institute for Economic Research

Abstract: Some violations of the expected utility hypotheses were explicated by Machina (1982) in a more general framework using the notion of local utility function and postulating that: (a) each local utility function displays decreasing absolute risk aversion and (b) the measure of absolute risk aversion is everywhere nondecreasing with respect to shifts towards first-order stochasticallY dominating distributions. In this paper we show that the evidence produced in the course of testing the "preference reversal" phenomenon, in conjunction with the assumption that individuals are disinclined to participate in fair symmetric bets, lends support to Machina's hypotheses.

Keywords: Financial Economics; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 23
Date: 1988-05
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: SOME OBSERVATIONS ON THE NATURE OF RISK AVERSION (1988)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:isfiwp:275445

DOI: 10.22004/ag.econ.275445

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