When confronted with uncertain prospects, people often exhibit both choice deferral and Ellsberg-type ambiguity aversion. This paper obtains a joint representation for these behavioral phenomena. The decision maker as portrayed by my model is willing to choose an uncertain prospect f over g rather than to defer this choice if and only if the expected utility of f is greater that or equal to the...

To a considerable extent, risk aversion as it is commonly observed is caused by loss aversion. Several indexes of loss aversion have been proposed in the literature. The one proposed in this paper leads to a clear decomposition of risk attitude into three distinct components: basic utility, probability weighting, and loss aversion. The index is independent of the unit of payment. The main theor...

The comonotonic additivity axiom has been applied successfully in behavior under risk and uncertainty, and in an other-regarding setting it suggests that preferences over two allocations are independent of the payoffs of unaffected players as long as both allocations generate the same rank order of payoffs. If other-regarding preferences satisfy comonotonic additivity and violate standard addit...

We analyze comparative risk aversion in a new way, through a comparative statics problem in which, for a cost, agents can shift from an initial probability distribution toward a preferred distribution. The Ross characterization arises when the original distribution is riskier than the preferred distribution and the cost is monetary, and theArrow–Pratt characterization ariseswhen the original di...

Risk and time are intertwined. The present is known while the future is inherently risky. This is problematic when studying time preferences since uncontrolled risk can generate apparently present-biased behavior. We systematically manipulate risk in an intertemporal choice experiment. Discounted expected utility performs well with risk, but when certainty is added common ratio predictions fail...

Recent theoretical research shows that in asset markets vague state probabilities lead to price volatility, trading inertia, and may worsen risk-sharing efficiency, whereas Subjective Expected Utility theory implies that prices, volumes, and final allocations for risky and uncertain assets should be equivalent. We investigate experimentally whether prices, trading, and final allocations are aff...

Revealed preference theory offers a criterion for decision-making quality: if decisions are high quality then there exists a utility function that the choices maximize. We conduct a large-scale field experiment that enables us to test for consistency with utility maximization. We find that high-income and high-education subjects display greater levels of consistency than low-income and low-educ...

It is shown that interim dynamically consistent trade may be supported among agents who have resolute (non-consequential) choice preferences.  2003 Elsevier Inc. All rights reserved. JEL classification: D81; D82; D84

We generalize permissibility (Brandenburger, 1992) to allow for any suitably defined model of preference and definition of possibility. We also prove that the generalized solution concept characterizes rationality, caution, and common “belief” of rationality and caution. JEL classification: C72; D81

Cumulative Prospect Theory (PT) introduced the weighting of probabilities as an additional component to capture risk attitudes. However, this addition would be a less significant challenge to expected utility theory (EU) if utility curvature and probability weighting showed strong positive correlation. In that case the utility curvature in EU alone, while not properly describing risky behavior ...