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Probabilistic Risk Attitudes and Local Risk Aversion: a Paradox

Vjollca Sadiraj ()

No 2012-07, Experimental Economics Center Working Paper Series from Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University

Abstract: Prominent theories of decision under risk that challenge expected utility theory model risk attitudes at least partly with transformation of probabilities. This paper shows how attributing local risk aversion (partly or wholly) to attitudes towards probabilities can produce extreme probability distortions that imply paradoxical risk aversion.

Keywords: risk aversion; probability transformation; calibration (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Pages: 17
Date: 2012-05
New Economics Papers: this item is included in nep-exp, nep-mic and nep-upt
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Journal Article: Probabilistic risk attitudes and local risk aversion: a paradox (2014) Downloads
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