Is there a plausible theory for decision under risk? A dual calibration critique

Cox, James C.; Sadiraj, Vjollca; Vogt, Bodo; Dasgupta, Utteeyo

doi:10.1007/s00199-012-0712-4

Cited by 26 publications

(22 citation statements)

References 29 publications

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“…Leading critics of EUT include Kahneman and Tversky (1979) and more recently Rabin (2000) and Rabin and Thaler (2001), who consider the weight of evidence against EUT sufficient to label it an 'exhypothesis'. In contrast, argues a case against probability weighting of the PT form, and more recently, the unfavourable implications for EUT from the concavity-calibration argument of Rabin (2000) have been challenged by Cox and Sadiraj (2006) and Cox et al (2013) on the grounds that calibration arguments lead to equally problematic implications for nonlinear probability weighting. Furthermore, models in which outcomes are weighted by functions of probabilities have also been challenged at the process level (Fiedler and Glöckner 2012).…”

Section: Introductionmentioning

confidence: 86%

Parametric preference functionals under risk in the gain domain: A Bayesian analysis

Balcombe

Fraser

2015

J Risk Uncertain

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The performance of rank dependent preference functionals under risk is comprehensively evaluated using Bayesian model averaging. Model comparisons are made at three levels of heterogeneity plus three ways of linking deterministic and stochastic models: differences in utilities, differences in certainty equivalents and contextual utility. Overall, the "best model", which is conditional on the form of heterogeneity, is a form of Rank Dependent Utility or Prospect Theory that captures most behaviour at the representative agent and individual level. However, the curvature of the probability weighting function for many individuals is S-shaped, or ostensibly concave or convex rather than the inverse S-shape commonly employed. Also contextual utility is broadly supported across all levels of heterogeneity. Finally, the Priority Heuristic model is estimated within a stochastic framework, and allowing for endogenous thresholds does improve model performance although it does not compete well with the other specifications considered.Keywords Risk · Prospect theory · Rank dependent utility · Bayesian model averaging · Contextual utility JEL Classifications C11 · C52 · D81 Electronic supplementary material The online version of this article (

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Section: Introductionmentioning

confidence: 86%

Parametric preference functionals under risk in the gain domain: A Bayesian analysis

Balcombe

Fraser

2015

J Risk Uncertain

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“…We can therefore follow Wei and Stocker, and assume a prior for θ with a density function given by f (θ), the function used above to characterize the inhomogeneity in the discriminability of nearby orientations. 11 This means that if we work in terms of the transformed state variableθ ≡ F (θ), the prior distribution forθ is uniform.…”

Section: Noisy Coding Of Sensory Magnitudesmentioning

confidence: 99%

Risk Aversion as a Perceptual Bias

Khaw¹,

Li²,

Woodford³

2017

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“…However, empirical evidence on the presence of RP is scarce, only a handful of empirical studies are available that tested RP, all in the economic domain. First, Cox, Sadiraj, Vogt, and Dasgupta (2013) observed RP preferences for financial outcomes in an incentive-compatible study. Second, Bleichrodt et al (2017) identified the causes of RP empirically, showing how a reference-dependent model with loss aversion may explain RP (as already suggested by Rabin, 2000).…”

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confidence: 99%

Rabin's paradox for health outcomes

Lipman

Attema

2019

Health Economics

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Many health economic studies assume expected utility maximisation, with typically a concave utility function to capture risk aversion. Given these assumptions, Rabin's paradox (RP) involves preferences over mixed gambles yielding moderate outcomes, where turning down such gambles imply absurd levels of risk aversion. Although RP is considered a classic critique of expected utility, no paper has as of yet fully tested its preferences within individuals. In an experiment we report a direct test of RP in the health domain, which was previously only considered in the economic literature, showing it may have pervasive implications here too. Our paper supports the shift towards alternative, empirically valid models, such as prospect theory, also in the health domain. These alternative models are able to accommodate Rabin's paradox by allowing reference‐dependence and loss aversion.

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Is there a plausible theory for decision under risk? A dual calibration critique

Abstract: Acknowledgements Financial support was provided by the National Science Foundation (grant numbers IIS-0630805 and SES-0849590). Helpful comments and suggestions were provided by an anonymous referee.

Cited by 26 publications

References 29 publications

Parametric preference functionals under risk in the gain domain: A Bayesian analysis

Parametric preference functionals under risk in the gain domain: A Bayesian analysis

Risk Aversion as a Perceptual Bias

Rabin's paradox for health outcomes

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