Ulric B. and Evelyn L. Bray Social Sciences Seminar
Background Risk and Small-Stakes Risk Aversion
Abstract: 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.
Written with Xiaosheng Mu, Philipp Strack, and Omer Tamuz.
This seminar was originally scheduled for Wednesday, January 13.
Contact: Letty Diaz firstname.lastname@example.org