Probabilistic risk attitudes and local risk aversion: a paradox

Theory and Decision 77 (4):443-454 (2014)
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Abstract

Prominent theories of decision under risk that challenge expected utility theory model risk attitudes at least partly with transformation of probabilities. This paper shows how attributing local risk aversion to attitudes towards probabilities can produce extreme probability distortions that imply paradoxical risk aversion.

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10.1007/s11238-013-9410-3

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References found in this work

Prospect Theory: For Risk and Ambiguity.Peter P. Wakker - 2010 - Cambridge University Press.
Prospect Theory: An Analysis of Decision Under Risk.D. Kahneman & A. Tversky - 1979 - Econometrica: Journal of the Econometric Society:263--291.

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