Risk Aversion in Cumulative Prospect Theory
This paper characterizes the conditions for strong risk aversion and second-order stochastic dominance for cumulative prospect theory. Strong risk aversion implies a convex weighting function for gains and a concave one for losses. It does not necessarily imply a concave utility function. The latter...
| Veröffentlicht in: | Management Science. - Institute for Operations Research and the Management Sciences, 1954. - 54(2008), 1, Seite 208-216 |
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| Format: | Online-Aufsatz |
| Sprache: | English |
| Veröffentlicht: |
2008
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| Zugriff auf das übergeordnete Werk: | Management Science |
| Schlagworte: | cumulative prospect theory loss aversion risk aversion second-order stochastic dominance decision analysis theory risk Economics Mathematics Behavioral sciences Information science |
| Zusammenfassung: | This paper characterizes the conditions for strong risk aversion and second-order stochastic dominance for cumulative prospect theory. Strong risk aversion implies a convex weighting function for gains and a concave one for losses. It does not necessarily imply a concave utility function. The latter does follow if the weighting functions are continuous. By investigating the exact relationship between loss aversion and strong risk aversion, a natural index for the degree of loss aversion is derived. |
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| ISSN: | 15265501 |