Two‐piece Von Neumann‐morgenstern Utility Functions*

Fishburn, Peter C.; Kochenberger, Gary A.

doi:10.1111/j.1540-5915.1979.tb00043.x

Cited by 329 publications

(174 citation statements)

References 18 publications

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“…The proposed convex/concave utility function predicts risk-seeking behavior in the domain of losses and risk-averse behavior in the domain of gains. Evidence for convex/concave utility functions across the total outcome domain has been found by Fishburn and Kochenberger (1979), Hershey and Schoemaker (1980), Budescu and Weiss (1987), and Kuhberger et al (1999), among others.…”

Section: Introductionmentioning

confidence: 89%

The Shape of Utility Functions and Organizational Behavior

2003

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B ased on measurements among 332 owner-managers, we investigate how the global shape of the utility function (i.e., S-shaped versus concave or convex over the total range of outcomes) relates to choice behavior. We find that the global shape of the utility function differs across decision makers (about one-third of the owner-managers exhibit an S-shaped utility function) and that the global shape is linked to organizational behavior (i.e., the production system employed), a result that does not change when using different methods to identify the decision maker's global shape of the utility function. The decision maker's risk attitude (risk averse or risk seeking) does not affect the choice of the production system. Whereas the degree of risk aversion, based on the local shape of the utility function, may be important in explaining owner-managers' trading behavior (Pennings and Smidts 2000), more structural organizational behavior appears to be linked to the global shape of the utility fimction.

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Section: Introductionmentioning

confidence: 89%

The Shape of Utility Functions and Organizational Behavior

2003

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“…It explains extreme risk aversion for gambles involving small losses and gains (Rabin 2000). Fishburn and Kochenberger (1979) were first to show that utility functions in terms of changes in wealth are steeper for losses than for gains. Numerous other 2 In the neutral situations the lottery faced by the referent does depend on the choice of the decision maker.…”

Section: Reference Dependencementioning

confidence: 99%

Social comparison and risky choices

2011

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Theories (and experiments) on decision making under risk typically ignore (and exclude) a social context. We explore whether this omission is detrimental. To do so we experimentally investigate the simplest possible situation with both social comparison and risk: participants choose between two lotteries while a referent faces a fixed payoff. Participants are more risk averse when they can earn at most as much as their referent (loss situation) than when they are ensured they will earn at least as much as their referent (gain situation). Prospect theory with a social reference point would predict the exact opposite behavior. These results show that straightforward extensions of existing theories to allow for social comparison do not provide accurate predictions.Keywords Decision making under risk . Reflection effect . Social comparison . Social preferences . Experiment JEL Classification C91 . D81 . D03Using comparison to evaluate outcomes or possibilities is a regular feature of human decision making. We compare our own situation to those of others (e.g. Clark et al.

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“…Previous reports of risk seeking attitudes generally *have been based on much smaller samples, e.g., data from 28 decision makers in Fishburn and Nochenberger [5], or have used students and university faculty as subjects, e.g., Kahneman and Tversky [141. Additional empirical evidence about the risk preferences of managers in particular, seems warranted due to the increasing concern with the role of managers in terms of decisions to allocate resources in situations of risk, e.g., capital investments in innovative projects. In addition, the present paper examines the extent to which risk preferences for below target outcomes may be sensitive to ruinous loss considerations.…”

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confidence: 99%

Managerial Risk Preferences for Below-Target Returns

1980

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This paper reports on the risk preferences for below target returns of 224 managers from the U.S. Canada, and Europe. When only non-ruinous losses were involved, 71% of the managers were risk seeking for below target returns. The distribution of risk preferences tended to be stable over a wide range of experimental conditions: diversity of background of the managers, the size of outcomes below target, and the context of the decision process (personal versus managerial). When ruinous losses were introduced for 75 of the managers, 64% switched to risk averse behavior. Empirical findings concerning the relationship between risk preferences for below target returns and several demographic characteristics of managers are also reported.decision making, utility preference, targets

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Two‐piece Von Neumann‐morgenstern Utility Functions*

Cited by 329 publications

References 18 publications

The Shape of Utility Functions and Organizational Behavior

The Shape of Utility Functions and Organizational Behavior

Social comparison and risky choices

Managerial Risk Preferences for Below-Target Returns

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