Background risk and small-stakes risk aversion

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Auteurs

Date

15 octobre 2020

Discipline

Economies et finances

Type de document

Textes imprimés

Périmètre

Publications

Identifiant

2010.08033

Source

arXiv - économie

Collection

Organisation

Cornell University

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Economics - Theoretical Economics

Sujets proches En

Economic theory Political economy

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Xiaosheng Mu et al., « Background risk and small-stakes risk aversion », arXiv - économie

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We show that under plausible levels of background risk, no theory of choice under risk -- such as expected utility theory, prospect theory, or rank dependent utility -- can simultaneously satisfy the following three economic postulates: (i) Decision makers are risk-averse over small gambles, (ii) they respect stochastic dominance, and (iii) they account for background risk.

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