Risky Decisions in the Large and in the Small:Theory and Experiment

Much of the literature on theories of decision making under risk has emphasized differences between theories. One enduring theme has been the attempt to develop a distinction between “normative” and “descriptive” theories of choice. Bernoulli (1738) introduced log utility because expected value theory was alleged to have descriptively incorrect predictions for behavior in St. Petersburg games. Much later, Kahneman and Tversky (1979) introduced prospect theory because of the alleged descriptive failure of expected utility (EU) theory (von Neumann & Morgenstern, 1947).

[1]  Vernon L. Smith,et al.  Auction market theory of heterogeneous bidders , 1982 .

[2]  D. Kahneman.  A Psychological Perspective on Economics , 2003 .

[3]  R. Thaler,et al.  Individual Preferences, Monetary Gambles and the Equity Premium , 2003 .

[4]  V. Smith,et al.  Research in Experimental Economics , 1979 .

[5]  Atanu Saha,et al.  Expo-Power Utility: A ‘Flexible’ Form for Absolute and Relative Risk Aversion , 1993 .

[6]  J. Pratt.  RISK AVERSION IN THE SMALL AND IN THE LARGE11This research was supported by the National Science Foundation (grant NSF-G24035). Reproduction in whole or in part is permitted for any purpose of the United States Government. , 1964 .

[7]  Mei Wang,et al.  Cumulative prospect theory and the St. Petersburg paradox , 2006 .

[8]  Paul R. Milgrom,et al.  A theory of auctions and competitive bidding , 1982 .

[9]  J. Quiggin.  Generalized expected utility theory : the rank-dependent model , 1994 .

[10]  Morten I. Lau,et al.  Estimating Risk Attitudes in Denmark: A Field Experiment , 2005 .

[11]  K. Arrow.  Essays in the theory of risk-bearing , 1958 .

[12]  Richard Gonzalez,et al.  Curvature of the Probability Weighting Function , 1996 .

[13]  Steven A. Matthews.  Selling to risk averse buyers with unobservable tastes , 1983 .

[14]  David W Harless,et al.  The predictive utility of generalized expected utility theories , 1994 .

[15]  D. Bernoulli.  Exposition of a New Theory on the Measurement of Risk , 1954 .

[16]  Olof Johansson-Stenman,et al.  Risk aversion and expected utility of consumption over time , 2010, Games Econ. Behav..

[17]  James C. Cox,et al.  Risk aversion in experiments , 2008 .

[18]  A. Tversky,et al.  Prospect theory: an analysis of decision under risk — Source link , 2007 .

[19]  Tibor Neugebauer.  Moral Impossibility in the Petersburg Paradox : A Literature Survey and Experimental Evidence , 2010 .

[20]  G. Harrison,et al.  Risk Aversion in the Laboratory , 2008 .

[21]  Jonathan Roughgarden,et al.  Rule of thumb , 1991, Behavioral and Brain Sciences.

[22]  William S. Neilson.  Calibration results for rank-dependent expected utility , 2001 .

[23]  E. Rowland.  Theory of Games and Economic Behavior , 1946, Nature.

[24]  James C. Cox,et al.  Is There A Plausible Theory for Risky Decisions , 2007 .

[25]  Colin Camerer,et al.  Violations of the betweenness axiom and nonlinearity in probability , 1994 .

[26]  J. Quiggin.  A theory of anticipated utility , 1982 .

[27]  Charles A. Holt,et al.  Risk Aversion and Incentive Effects: New Data without Order Effects , 2005 .

[28]  Frank Heinemann,et al.  Measuring risk aversion and the wealth effect , 2008 .

[29]  Ronald L. Oaxaca,et al.  IS BIDDING BEHAVIOR CONSISTENT WITH BIDDING THEORY FOR PRIVATE VALUE AUCTIONS , 2002 .

[30]  J. Hey,et al.  INVESTIGATING GENERALIZATIONS OF EXPECTED UTILITY THEORY USING EXPERIMENTAL DATA , 1994, Experiments in Economics.

[31]  A. Tversky,et al.  Prospect theory: analysis of decision under risk , 1979 .

[32]  Charles R. Plott,et al.  Nonlinear Behavior in Sealed Bid First Price Auctions , 1998 .

[33]  M. Rabin.  Risk Aversion and Expected Utility Theory: A Calibration Theorem , 2000 .

[34]  D. Bernoulli.  Specimen theoriae novae de mensura sortis : translated into German and English , 1967 .

[35]  P. Samuelson.  St. Petersburg Paradoxes: Defanged, Dissected, and Historically Described , 1977 .

[36]  R. Thaler,et al.  Anomalies: Risk Aversion , 2001 .

[37]  M. Harris,et al.  ALLOCATION MECHANISMS AND THE DESIGN OF AUCTIONS , 1981 .

[38]  Jacob K. Goeree,et al.  A model of noisy introspection , 2004, Games Econ. Behav..

[39]  Jacob K. Goeree,et al.  Risk averse behavior in generalized matching pennies games , 2003, Games Econ. Behav..

[40]  A. Tversky,et al.  Advances in prospect theory: Cumulative representation of uncertainty , 1992 .

[41]  Jacob K. Goeree,et al.  Quantal Response Equilibrium and Overbidding in Private-Value Auctions , 2002, J. Econ. Theory.

[42]  John Moore.  Global Incentive Constraints in Auction Design , 1984 .

[43]  Ariel Rubinstein,et al.  Dilemmas of an Economic Theorist , 2006 .

[44]  Utteeyo Dasgupta,et al.  Is There a Plausible Theory for Decision Under Risk? A Dual Calibration Critique , 2008 .

[45]  M. Yaari.  The Dual Theory of Choice under Risk , 1987 .

[46]  James C. Cox,et al.  Small- and Large-Stakes Risk Aversion: Implications of Concavity Calibration for Decision Theory , 2005, Games Econ. Behav..

[47]  G. Harrison,et al.  Naturally Occurring Preferences and Exogenous Laboratory Experiments: A Case Study of Risk Aversion , 2004 .

[48]  Chris D. Orme,et al.  Investigating Generalisations of Expected Utility Theory Using Experimental Data , 1994 .

[49]  E. Maskin,et al.  Optimal Auctions with Risk Averse Buyers , 1984 .

[50]  Charles A. Holt,et al.  Competitive Bidding for Contracts under Alternative Auction Procedures , 1980, Journal of Political Economy.

[51]  Colin F. Camerer,et al.  In Honor of Matthew Rabin: Winner of the John Bates Clark Medal , 2003 .

[52]  J. Quiggin.  Generalized expected utility theory , 1992 .

[53]  Charles A. Holt,et al.  Risk Aversion and Incentive Effects , 2002 .