Asymmetric gain–loss reference dependence and attitudes toward uncertainty

Lleras, Juan Sebastián; Piermont, Evan; Svoboda, Richard

doi:10.1007/s00199-018-1138-4

Cited by 5 publications

(1 citation statement)

References 47 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…probability weighting function that reproduces estimates existing in the literature (e.g., Werner and Zank 2019;Lleras et al 2019). Laussel and Resende (2020) investigate how asymmetric information on final demand affects strategic interaction between a downstream monopolist and a number of upstream monopolists, who independently produce complementary inputs.…”

mentioning

confidence: 89%

Special Issue: Supermodularity and Monotonicity in Economics

Amir

2020

Econ Theory

View full text Add to dashboard Cite

This Special issue is composed of eight separate papers, each using the general methodology of supermodular games (such as Topkis's Theorem on monotone comparative statics, Topkis 1998) and/or monotone methods (such as Tarski's fixed point theorem). The topics of the papers lie in quite diversified areas of pure and applied economic theory, including the foundations of risk and uncertainty, principal-agent theory, Markov stopping games, recursive games, games with individually monotonic best responses, potential games, and oligopoly theory with and without network effects. In what follows, we provide a brief introduction to each of the papers, in the order in which they appear in the Special Issue, along with some brief remarks on their respective related literature. Gollier (2020) defines a notion of regret-risk aversion by requiring that the regretrisk-averse individual never choose the lottery that generates the larger risk of regret in a menu in which two lotteries have the same distribution of payoffs, with one generating a larger risk of regret in the sense of Rothschild-Stiglitz. It turns out that this notion is intimately connected to the concept of comparative concordance as introduced in economics by Epstein and Tanny (1980) and Tchen (1980); also see Amir and Lazzati (2016). The main result establishes that an individual is regret-risk-averse (-loving) if and only if her bivariate utility function is supermodular (submodular), i.e., has a positive (negative) cross partial derivative. We define regret-risk aversion in the small and in the large. We also show that regret-risk aversion tends to induce a bias in favor of the risky act in any one-risky-one-safe menu, in particular when the payoff of the risky choice is highly positively skewed. This is compatible with the "possibility effect" from prospect theory. Symmetrically, the aversion to rejoicing-risk can prevail when ex post utility is sensitive to the forgone worst payoff. Rejoicing-risk-seeking is compatible with the "certainty effect". Finally regret-risk-averse and rejoicing-riskseeking people behave as if they had rank-dependent utility with an inverseS shaped B Rabah Amir

show abstract

mentioning

confidence: 89%