Risk Aversion as Attitude towards Probabilities: A Paradox
James Cox () and
Vjollca Sadiraj ()
No 2011-10, Experimental Economics Center Working Paper Series from Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University
Theories of decision under risk that challenge expected utility theory model risk attitudes at least partly with transformation of probabilities. We explain how attributing risk aversion (partly or wholly) to attitude towards probabilities, can produce extreme probability distortions that imply paradoxical risk aversion.
Keywords: risk aversion; probability transformation; calibration; reference dependence; loss aversion (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:exc:wpaper:2011-10
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