Dynamic Decision Making when Risk Perception Depends on Past Experience

Michèle Cohen, Johanna Etner and Meglena Jeleva
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Meglena Jeleva: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, GAINS - Groupe d'Analyse des Itinéraires et des Niveaux Salariaux - UM - Le Mans Université

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Abstract: The aim of the paper is to propose a preferences representation model under risk where risk perception can be past experience dependent. A first step consists in considering a one period decision problem where individual preferences are no more defined only on decisions but on pairs (decision, past experience). The obtained criterion is used in the construction of a dynamic choice model under risk. The paper ends with an illustrative example concerning insurance demand. Itappears that our model allows to explain modifications in the insurance demand behavior over time observed on the insurance markets for catastrophic risk and difficult to justify with standard models.

Keywords: dynamic decision making; past experience; rank dependent utility model; recursive model; risk perception (search for similar items in EconPapers)
Date: 2008-03
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00211942v1
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Citations: View citations in EconPapers (23)

Published in Theory and Decision, 2008, 64 (2-3), pp.173-192. ⟨10.1007/s11238-007-9061-3⟩

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Journal Article: Dynamic Decision Making when Risk Perception Depends on Past Experience (2008)
Working Paper: Dynamic Decision Making when Risk Perception Depends on Past Experience (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00211942

DOI: 10.1007/s11238-007-9061-3

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