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Title:Understanding the two components of risk attitudes: An experimental analysis PDF Logo
Authors:Qiu, Jianying
Steiger, Eva-Maria
Issue Date:2010
Series/Report no.:Jena economic research papers 2010,053
Abstract:Cumulative Prospect Theory (PT) introduced the weighting of probabilities as an additional component to capture risk attitudes. However, this addition would be a less significant challenge to expected utility theory (EU) if utility curvature and probability weighting showed strong positive correlation. In that case the utility curvature in EU alone, while not properly describing risky behavior in general, would still capture most of the variance of individual risk aversion. This study provides experimental evidence that such a strong and positive correlation does not exist. Although most individuals exhibit concave utility and convex probability weighting, the two components show no strong positive correlation.
Subjects:risk attitudes
cumulative prospect theory
experimental study
JEL:C91
D81
Document Type:Working Paper
Appears in Collections:Jena Economic Research Papers, MPI für Ökonomik

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