Probabilistic Risk Attitudes and Local Risk Aversion: a Paradox

Prominent theories of decision under risk that challenge expected utility theory model risk attitudes at least partly with transformation of probabilities. This paper shows how attributing local risk aversion (partly or wholly) to attitudes towards probabilities can produce extreme probability distortions that imply paradoxical risk aversion

Implications of Trust, Fear, and Reciprocity for Modeling Economic Behavior

This paper reports three experiments with triadic or dyadic designs. The experiments include the moonlighting game in which first-mover actions can elicit positively or negatively reciprocal reactions from second movers. First movers can be motivated by trust in positive reciprocity or fear of negative reciprocity, in addition to unconditional other-regarding preferences. Second movers can be motivated by unconditional other-regarding preferences as well as positive or negative reciprocity. The experimental designs include control treatments that discriminate among actions with alternative motivations. Data from our three experiments and a fourth one are used to explore methodological questions, including the effects on behavioral hypothesis tests of within-subjects vs. across-subjects designs, single-blind vs. double-blind payoffs, random vs. dictator first-mover control treatments, and strategy responses vs. sequential play.

Risk Aversion as Attitude towards Probabilities: A Paradox

Theories of decision under risk that challenge expected utility theory model risk attitudes at least partly with transformation of probabilities. We explain how attributing risk aversion (partly or wholly) to attitude towards probabilities, can produce extreme probability distortions that imply paradoxical risk aversion.risk aversion, probability transformation, calibration, reference dependence, loss aversion

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

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On Modeling Voluntary Contributions to Public Goods

This paper addresses four "stylized facts" that summarize data from experimental studies of voluntary contributions to provision of public goods. Theoretical propositions and testable hypotheses for voluntary contributions are derived from two models of social preferences, the inequity aversion model and the egocentric other-regarding preferences model. We find that the egocentric other-regarding preferences model with classical regularity properties can better account for the stylized facts than the inequity aversion model with non-classical properties.

Small- and Large-Stakes Risk Aversion: Implications of Concavity Calibration for Decision Theory

A growing literature reports the conclusions that: (a) expected utility theory does not provide a plausible theory of risk aversion for both small-stakes and large-stakes gambles; and (b) this decision theory should be replaced with an alternative theory characterized by loss aversion. This paper explains that the arguments in previous literature fail to support these conclusions. Either concavity calibration has no general implication for expected utility theory or it has problematic implications for all decision theories that involve concave transformations (utility or value functions) of positive money payoffs, which makes loss aversion irrelevant to the argument

Implications of Trust, Fear, and Reciprocity for Modeling Economic Behavior

This paper reports three experiments with triadic or dyadic designs. The experiments include the moonlighting game in which first-mover actions can elicit positively or negatively reciprocal reactions from second movers. First movers can be motivated by trust in positive reciprocity or fear of negative reciprocity, in addition to unconditional other-regarding preferences. Second movers can be motivated by unconditional other-regarding preferences as well as positive or negative reciprocity. The experimental designs include control treatments that discriminate among actions with alternative motivations. Data from our three experiments and a fourth one are used to explore methodological questions, including the effects on behavioral hypothesis tests of within-subjects vs. across-subjects designs, single-blind vs. double-blind payoffs, random vs. dictator first-mover control treatments, and strategy responses vs. sequential play

On the Coefficient of Variation as a Measure of Risk Sensitivity

Weber, Shafir, and Blais (2004) advocate use of the coefficient of variation (CV) as a measure of risk sensitivity and apply CV in a meta-analysis of data for risky choices by humans and animals. We critically re-examine the CV measure as either a normative or descriptive criterion for decision under risk. CV fails as a normative criterion because it violates first order stochastic dominance. Whether or not CV succeeds as a descriptive criterion depends on its consistency or inconsistency with data from experiments designed to test its distinctive properties. We report an experiment with human subjects motivated by salient monetary payoffs. The data are inconsistent with the hypothesis that the CVs of risky lotteries are a significant determinant of subjects’ choices between the lotteries and certain payoffs

Risk Aversion as Attitude towards Probabilities: A Paradox

Theories of decision under risk that challenge expected utility theory model risk attitudes at least partly with transformation of probabilities. We explain how attributing risk aversion (partly or wholly) to attitude towards probabilities, can produce extreme probability distortions that imply paradoxical risk aversion

Identification of Voters with Interest Groups Improves the Electoral Chances of the Challenger

This short paper investigates the consequences of voters identifying with special interest groups in a spatial model of electoral competition. We show that, by effectively coordinating voting behavior, identification with interest groups leads to an increase in the size of the winning set, that is, the set of policy platforms for the challenger that will defeat the incumbent. Consequently, our paper points at a novel process through which interest groups can enhance the electoral chances of a challenger.