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Risk Aversion as Attitude towards Probabilities: A Paradox
Cox, James ; Sadiraj, Vjollca
Cox, James
Sadiraj, Vjollca
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Abstract
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.
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To learn more about the Andrew Young School of Policy Studies and ExCEN Working Papers Series, visit https://aysps.gsu.edu/ and http://excen.gsu.edu/center/.
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2011-01-01
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Risk aversion, probability transformation, calibration, reference dependence, loss
aversion
