Rationality on the rise
Why relative risk aversion increases with stake size
METADATA ONLY
Loading...
Author / Producer
Date
2008
Publication Type
Working Paper
ETH Bibliography
yes
Citations
Altmetric
METADATA ONLY
Data
Rights / License
Abstract
How does risk tolerance vary with stake size? This important question cannot be adequately answered if framing effects, nonlinear probability weighting, and heterogeneity of preference types are neglected. We show that, contrary to gains, no coherent change in relative risk aversion is observed for losses. The increase in relative risk aversion over gains cannot be captured by the curvature of the utility function. It is driven predominantly by a change in probability weighting of a majority group of individuals who exhibit more rational probability weighting at high stakes. These results not only challenge expected utility theory, but also prospect theory.
Permanent link
Publication status
published
External links
Editor
Book title
Journal / series
Volume
0708
Pages / Article No.
1 - 33
Publisher
Socioeconomic Institute, University of Zurich
Event
Edition / version
Methods
Software
Geographic location
Date collected
Date created
Subject
Organisational unit
03361 - Schubert, Renate (emeritus) / Schubert, Renate (emeritus)