Risk aversion in the small and in the large: Calibration results for betweenness functionals |
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Authors: | Zvi Safra Uzi Segal |
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Institution: | (1) The College of Management and Tel Aviv University, Tel Aviv, Israel;(2) Department of Economics, Boston College, Chestnut Hill, MA 02467, USA |
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Abstract: | A reasonable level of risk aversion with respect to small gambles leads to a high, and absurd, level of risk aversion with
respect to large gambles. This was demonstrated by Rabin (Econometrica 68:1281–1292, 2000) for expected utility theory. Later, Safra and Segal (Econometrica, 2008) extended this result by showing that similar arguments apply to many non-expected utility theories, provided they are Gateaux
differentiable. In this paper we drop the differentiability assumption and by restricting attention to betweenness theories
we show that much weaker conditions are sufficient for the derivation of similar calibration results.
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Keywords: | Risk aversion Calibration results Betweenness functionals |
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