Loss aversion and perceptionally risk aversion
نویسنده
چکیده
This paper analyzes, for S-shaped value functions, the relations between loss aversion and perceptionally risk aversion (i.e. computed with the perceived probability weights) in Cumulative Prospect Theory . We show that perceptionally risk aversion for mixed sign lotteries is equivalent to weak (or strong) loss aversion, so this is the right assumption to get a sensible behavior towards risk. The widely used power S-shaped value function does not display loss aversion, hence it can lead to a puzzling behavior: an increase in risk can make the lottery more attractive and the same individual can display different attitudes toward risk.
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