Calibration without Reduction for Non-Expected Utility
David Freeman ()
Discussion Papers from Department of Economics, Simon Fraser University
Calibration results in Rabin (2000) and Safra and Segal (2008; 2009) suggest that both expected and non-expected utility theories cannot produce non-negligible risk aversion over small stakes without producing implausible risk aversion over large stakes. This paper provides calibration results for recursive non-expected utility theories that relax the Reduction of Compound Lotteries axiom (as in Segal 1990). These calibration results imply that a broad class of non-expected utility theories can accommodate both small and large stakes risk aversion, even for a decision-maker who faces background risk.
Keywords: risk aversion; calibration; non-expected utility theories; recursive preferences. (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-upt
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Journal Article: Calibration without reduction for non-expected utility (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:sfu:sfudps:dp15-01
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