Comparative Risk Sensitivity with Reference-Dependent Preferences |
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Authors: | William S. Neilson |
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Affiliation: | (1) Department of Economics, Texas A&M University, College Station, TX 77843-4228 |
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Abstract: | Experimental evidence suggests that individuals are risk averse over gains and risk seeking over losses (i.e., they have S-shaped utility functions in an expected utility setting) and that they are loss averse. Furthermore, the evidence leads to a single definition of S-shaped utility, but it has led to several alternative specifications of loss aversion. This paper characterizes the relations more S-shaped than and more loss averse than for a utility function, and in so doing arrives at a new definition of loss aversion based on average instead of marginal utility. |
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Keywords: | risk aversion loss aversion reference dependence prospect theory expected utility |
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