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Calibration results for rank-dependent expected utility

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  • William Neilson

    (Texas A&M University)

Abstract

If its utility function is everywhere increasing and concave, rank-dependent expected utility shares a troubling property with expected utility aversion to the same moderate-stakes risk at every wealth level implies an extreme aversion to large-stakes risks. In fact, the problem may be even worse for rank-dependent expected utility, since the moderate-stakes risk need not be actuarially fair.

Suggested Citation

  • William Neilson, 2001. "Calibration results for rank-dependent expected utility," Economics Bulletin, AccessEcon, vol. 4(10), pages 1-5.
    • Handle: RePEc:ebl:ecbull:eb-01d80002
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    References listed on IDEAS

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    Cited by:

    1. Olivier L'Haridon & Craig S. Webb & Horst Zank, 2021. "An Effective and Simple Tool for Measuring Loss Aversion," Economics Discussion Paper Series 2107, Economics, The University of Manchester.
    2. Neilson, William S. & Winter, Harold, 2002. "A verification of the expected utility calibration theorem," Economics Letters, Elsevier, vol. 74(3), pages 347-351, February.
    3. Han Bleichrodt & Jason N. Doctor & Yu Gao & Chen Li & Daniella Meeker & Peter P. Wakker, 2019. "Resolving Rabin’s paradox," Journal of Risk and Uncertainty, Springer, vol. 59(3), pages 239-260, December.
    4. Ivan Paya & David Peel & Konstantinos Georgalos, 2020. "On the Predictions of Cumulative Prospect Theory for Third and Fourth Order Preferences," Working Papers 293574809, Lancaster University Management School, Economics Department.
    5. Harrison, Glenn W. & Lau, Morten I. & Ross, Don & Swarthout, J. Todd, 2017. "Small stakes risk aversion in the laboratory: A reconsideration," Economics Letters, Elsevier, vol. 160(C), pages 24-28.
    6. Yusufcan Masatlioglu & Collin Raymond, 2016. "A Behavioral Analysis of Stochastic Reference Dependence," American Economic Review, American Economic Association, vol. 106(9), pages 2760-2782, September.
    7. Steffen Andersen & James C. Cox & Glenn W. Harrison & Morten Lau & Elisabet E. Rutstroem & Vjollca Sadiraj, 2011. "Asset Integration and Attitudes to Risk: Theory and Evidence," Department of Economics Working Papers 2011_10, Durham University, Department of Economics.
    8. Schmidt, Ulrich & Zank, Horst, 2009. "A simple model of cumulative prospect theory," Journal of Mathematical Economics, Elsevier, vol. 45(3-4), pages 308-319, March.
    9. Just, David R. & Peterson, Hikaru Hanawa, 2003. "Expected Utility Calibration for Continuous Distributions," Working Papers 127170, Cornell University, Department of Applied Economics and Management.
    10. James Cox & Vjollca Sadiraj & Bodo Vogt & Utteeyo Dasgupta, 2013. "Is there a plausible theory for decision under risk? A dual calibration critique," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 54(2), pages 305-333, October.
    11. Zvi Safra & Uzi Segal, 2005. "Are Universal Preferences Possible? Calibration Results for Non-Expected Utility Theories," Boston College Working Papers in Economics 633, Boston College Department of Economics.

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    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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