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Non-expected utility and the robustness of the classical insurance paradigm : 074070 (E12) Machina M.J., University of California-San Diego, USA, The Geneva Papers on Risk and Insurance, Vol. 20, nr. 01, 1995, pp. 9–50 is a Economics, Econometrics and Finance article available to read on EtoBox.

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Lute and Fishburn (1991) derived a general rank-dependent utility model using an operation @ of joint receipt. Their argument rested on an empirically supported property (now) called segregation and on the assumption that utility is additive over CD. This note generalizes that conclusion to the case where utility need not be additive over @, but rather is of a more general form, which they derived but did not use in their article. Tversky and Kahneman (1992), conjecturing that the joint receipt of two sums of money is simply their sum, criticized that original model because CD = + together with additive utility implies the unacceptable conclusion that the utility of money is proportional to money. In the present generalized theory, if CB = f, utility is a negative exponential function of money rather than proportional. Similar results hold for losses. The case of mixed gains and losses is less well understood. This study examines whether bettors' risk preferences or overconfidence in choosing winners better explains their well documented preference for lowprobability wagers. Although previous studies using racetrack data often suggest that risk-loving behavior explains long-shot pr

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Publisher

Elsevier Science; Elsevier ; Elsevier BV (ISSN 0167-6687)

Published

1996

Language

EN

Field

Economics, Econometrics and Finance (Social Sciences)