- On the composition of risk preference and belief
- Psychological Review
- Pages (from-to)
- Document type
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
This paper proposes a decomposition of nonadditive decision weights into a component reflecting risk attitude and a component depending on belief. The decomposition is based solely on observable preference and does not invoke other empirical primitives such as statements of judged probabilities. The characterizing preference condition (less sensitivity towards uncertainty than towards risk) deviates somewhat from the often-studied ambiguity aversion but is confirmed in the empirical data. The decomposition only invokes one-nonzero-outcome prospects and is valid under all theories with a nonlinear weighting of uncertainty.
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