When attempting to draw a ball of a specified color either from an urn containing 50 red balls and 50 black balls or from an urn containing an unknown ratio of 100 red and black balls, a majority of decision makers prefer the known-risk urn, and this ambiguity aversion effect violates expected utility theory. In an experimental investigation of the effect of urn size on ambiguity aversion, 149 ...

We consider a formal approach to comparative risk aversion and applies it to intertemporal choice models. This allows us to ask whether standard classes of utility functions, such as those inspired by Kihlstrom and Mirman (1974), Selden (1978), Epstein and Zin (1989) and Quiggin (1982) are well-ordered in terms of risk aversion. Moreover, opting for this model-free approach allows us to establi...

Human attitude towards risk is mixed. However, looking at the persuasive argument of diminishing marginal utility of wealth, academia has adopted risk aversion as the norm. Inculcating risk aversion, expected utility hypothesis (EUH) is used to rank risky options. ‘Allais paradox’ contradicted EUH but promoted the conviction of risk aversion intuitively on the basis of certainty effect. Most of...

Many studies demonstrate the social benefits of cooperation. Likewise, recent studies convincingly demonstrate that betrayal aversion hinders trust and discourages cooperation. In this respect, betrayal aversion is unlike socially "beneficial" preferences including altruism, fairness and inequity aversion, all of which encourage cooperation and exchange. To our knowledge, other than the suggest...

This paper investigates the effect of accountability-the expectation on the side of the decision maker of having to justify his/her decisions to somebody else-on loss aversion. Loss aversion is commonly thought to be the strongest component of risk aversion. Accountability is found to reduce the bias of loss aversion. This effect is explained by the higher cognitive effort induced by accountabi...

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. T...

Most frequently used class of utility functions for modelling the investment policy of individual agents by the constant relative risk aversion (CRRA) utility functions. The objective of this paper is to try to provide the plausible risk aversion parameter of individual households under this assumption. I argue that the risk aversion of an individual investor may be significantly larger than is...

The literature discusses risk aversion as one of the behavioral determinants of technology adoption. However, little attention has been paid to measuring ambiguity aversion of poor people in developing countries or in finding the role of ambiguity aversion in technology adoption. Risk experiments in the previous studies have been designed in such a way that individuals face the risky and/or amb...

Building on Kihlstrom and Mirman (1974)’s formulation of risk aversion in the case of multidimensional utility functions, we study the effect of risk aversion on optimal behavior in a general consumer’s maximization problem under uncertainty. We completely characterize the relationship between changes in risk aversion and classical demand theory. We show that the effect of risk aversion on opti...

Expected utility functions are limited to second-order (conditional) risk aversion, while non-expected utility functions can exhibit either first-order or second-order (conditional) risk aversion. We extend the concept of orders of conditional risk aversion to orders of conditional dependent risk aversion. We show that first-order conditional dependent risk aversion is consistent with the frame...