Valuing bets and hedges: Implications for the construct of risk preference
Journal Title: Judgment and Decision Making - Year 2018, Vol 13, Issue 6
Abstract
Risk attitudes implied by valuations of risk-increasing assets depart markedly from those implied by valuations of risk-reducing assets. For instance, many are unwilling to pay the expected value for a risky asset or for its perfect hedge. Although nearly every theory of risk preference (and logic) demands a negative correlation between valuations of bets and hedges, we observe positive correlations. This inconsistency is difficult to expunge.
Authors and Affiliations
Shane Frederick, Amanda Levis, Steven Malliaris and Andrew Meyer
Keywords
Related Articles
- EP ID EP678380
- DOI -
- Views 147
- Downloads 0
Nudge to nobesity I: Minor changes in accessibility decrease food intake
Very small but cumulated decreases in food intake may be sufficient to erase obesity over a period of years. We examine the effect of slight changes in the accessibility of different foods in a pay-by-weight-of-food sala...
A Criticism of Doyle’s survey of time preference: A correction regarding the CRDI and CADI families
Doyle’s (2013) theoretical survey of discount functions criticizes two parametric families abbreviated as CRDI and CADI families. We show that Doyle’s criticisms are based on a mathematical mistake and are incorrect.
To trade or not to trade: The moderating role of vividness when exchanging gambles
Individuals are generally reluctant to trade goods—a phenomenon identified as the endowment effect. This paper focuses on consumers’ puzzling reluctance to exchange gambles, and in particular lottery tickets with identic...
Precise models deserve precise measures: A methodological dissection
The recognition heuristic (RH) — which predicts non-compensatory reliance on recognition in comparative judgments — has attracted much research and some disagreement, at times. Most studies have dealt with whether or und...
In the “I” of the storm: Shared initials increase disaster donations
People prefer their own initials to other letters, influencing preferences in many domains. The “name letter effect” (Nuttin, 1987) may not apply to negatively valenced targets if people are motivated to downplay or dist...