Expected utility of final wealth and the Rabin anomaly
- This short note aims to show that Rabin’s anomaly can be avoided while remaining within the bounds of the final-wealth, expected utility approach, if the hypothesis of risk aversion over monetary amounts is replaced by the assumption of risk aversion over subjective consequences. We argue that the assumption of monetary risk aversion may return unrealistic predictions in specific decision contexts, or in the presence of large stakes.
| Document Type: | Working Paper |
|---|---|
| Language: | English |
| Author: | Pierfrancesco La MuraORCiD |
| Chairs and Professorships: | Chair of Economics and Information Systems |
| Year of Completion: | 2009 |
| Note: | HHL Working Paper 91. HHL - Leipzig Graduate School of Management, 2009 |