Palacios-Huerta, Ignacio and Serrano, Roberto (2006) Rejecting small gambles under expected utility. Economics Letters, 91 (2). pp. 250-259. ISSN 0165-1765
Full text not available from this repository.Abstract
This paper contributes to an important recent debate around expected utility and risk aversion. Rejecting a gamble over a given range of wealth levels imposes a lower bound on risk aversion. Using this lower bound and empirical evidence on the range of the risk aversion coefficient, we calibrate the relationship between risk attitudes over small-stakes and large-stakes gambles. We find that rejecting small gambles is consistent with expected utility, contrary to a recent literature that concludes that expected utility is fundamentally unfit to explain decisions under uncertainty. Paradoxical behavior is only obtained when calibrations are made in a region of the parameter space that is not empirically relevant.
| Item Type: | Article |
|---|---|
| Official URL: | http://www.elsevier.com/locate/inca/505574 |
| Additional Information: | © 2005 Elsevier B.V. |
| Divisions: | Management |
| Subjects: | H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management H Social Sciences > HB Economic Theory |
| Date Deposited: | 11 Jan 2010 09:50 |
| Last Modified: | 04 Jan 2024 08:45 |
| URI: | http://eprints.lse.ac.uk/id/eprint/26556 |
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