Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/64532
Authors: 
Friedman, Daniel
Sunder, Shyam
Year of Publication: 
2011
Series/Report no.: 
Working Papers, UC Santa Cruz Economics Department 681
Abstract: 
Most theories of risky choice postulate that a decision maker maximizes the expectation of a Bernoulli (or utility or similar) function. We tour 60 years of empirical search and conclude that no such functions have yet been found that are useful for out-of-sample prediction. Nor do we find practical applications of Bernoulli functions in major risk-based industries such as finance, insurance and gambling. We sketch an alternative approach to modeling risky choice that focuses on potentially observable opportunities rather than on unobservable Bernoulli functions.
Subjects: 
expected utility
risk aversion
St. Petersburg Paradox
decisions under uncertainty
option theory
JEL: 
C91
C93
D11
D81
G11
G12
G22
L83
Document Type: 
Working Paper

Files in This Item:
File
Size
352.55 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.