Risk attitudes over small and large stakes recalibrated

Eduardo Zambrano

No 1906, Working Papers from California Polytechnic State University, Department of Economics

Abstract: In this paper I provide bounds on the marginal rate of substitution between losing $x and winning $y, starting from wealth level $w, for a risk averse individual that rejects a small stake gamble for a range of initial wealth levels. I then prove a theorem that can be used to identify the kinds of large stakes that would be rejected by any such individual. The theorems allow us to understand how much risk aversion is embedded in anyone's rejections of certain small stakes gambles and provide tighter connections between the results in Rabin (2000) and the received theory of decision making under risk.

Keywords: Expected Utility Theory; Risk Aversion Calibration (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Pages: 9 pages
Date: 2019
New Economics Papers: this item is included in nep-rmg and nep-upt
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https://drive.google.com/file/d/1cxCTc-GDYauRVeMFy ... /view?usp=drive_link First version, 2019 (application/pdf)

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Journal Article: Risk attitudes over small and large stakes recalibrated (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:cpl:wpaper:1906

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