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Rethinking Risk Attitude: Aspiration as Pure Risk

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  • Greg Davies

Abstract

There exists no completely satisfactory theory of risk attitude in current normative decision theories. Existing notions confound attitudes to pure risk with unrelated psychological factors such as strength of preference for certain outcomes, and probability weighting. In addition traditional measures of risk attitude frequently cannot be applied to non-numerical consequences, and are not psychologically intuitive. I develop Pure Risk theory which resolves these problems – it is consistent with existing normative theories, and both internalises and generalises the intuitive notion of risk being related to the probability of not achieving one’s aspirations. Existing models which ignore pure risk attitudes may be misspecified, and effects hitherto modelled as loss aversion or utility curvature may be due instead to Pure Risk attitudes. Copyright Springer 2006

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  • Greg Davies, 2006. "Rethinking Risk Attitude: Aspiration as Pure Risk," Theory and Decision, Springer, vol. 61(2), pages 159-190, September.
    • Handle: RePEc:kap:theord:v:61:y:2006:i:2:p:159-190
    DOI: 10.1007/s11238-006-0007-y
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    1. Davies, G.B. & Satchell, S.E., 2004. "The Behavioural Components of Risk Aversion," Cambridge Working Papers in Economics 0458, Faculty of Economics, University of Cambridge.
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    Cited by:

    1. Enrico Diecidue & Jeroen Van De Ven, 2008. "Aspiration Level, Probability Of Success And Failure, And Expected Utility," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(2), pages 683-700, May.

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