Risk Aversion and Expected-Utility Theory¶
Rabin, M. (2000). Risk Aversion and Expected-Utility Theory: A Calibration Theorem. Econometrica, 68(5), 1281-1292.
Cited by¶
2 citations across 2 artifacts.
Each citation links to the sentence it supports in the citing article.
Primes¶
- Loss Aversion
- T5 — Loss aversion vs. expected-utility calibration: Rabin (2000)
Supported in partVerified against the work's full text
Rabin's calibration paper sets loss aversion beside expected-utility calibration, citing the Tversky and Kahneman estimate of "the loss-aversion-to-gain-attraction ratio" at about 2:1 and observing that "most examples and calibrations of loss aversion imply expected-utility theory" reconciling plausible attitudes to large stakes with nontrivial risk aversion over modest ones. That pairing is what the heading names. The work treats loss aversion as an input to its calibration argument rather than deriving or establishing loss aversion itself.
“Indeed, what is empirically the most firmly established feature of risk preferences, loss aversion, is a departure from expected-utility theory that provides a direct explanation for modest-scale risk aversion.”
- T5 — Loss aversion vs. expected-utility calibration: Rabin (2000)
- Risk Aversion
- demonstrated violations; Rabin (2000)
This sourceProves a calibration theorem: under expected utility, even modest risk aversion over small stakes implies absurdly extreme risk aversion over large stakes, exposing EU's descriptive inadequacy for explaining small-stakes risk aversion via concavity alone.
Supported in partVerified against the work's full text
Rabin's paper supplies the calibration theorem and its conclusion that expected utility fails for modest-stakes risk attitudes; it does not discuss Allais's violations.
“But this and previous papers make clear that expected-utility theory is manifestly not close to the right explanation of risk attitudes over modest stakes.”
- demonstrated violations; Rabin (2000)
Verification¶
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