TY - JOUR

T1 - Non-expected utility risk premiums

T2 - The cases of probability ambiguity and outcome uncertainty

AU - Segal, Uzi

AU - Spivak, Avia

PY - 1988/9

Y1 - 1988/9

N2 - This paper discusses two problems. (a) What happens to the conditional risk premium that a decision maker is willing to pay out of the middle prize in a lottery to avoid uncertainty concerning the middle prize outcome, when the probabilities of other prizes change? (b) What happens to the increase that a decision maker is willing to accept in the probability of an unpleasant outcome in order to avoid ambiguity concerning this probability, when this probability increases? We discuss both problems by using anticipated utility theory, and show that the same conditions on this functional predict behavioral patterns that are consistent both with a natural extension of the concept of diminishing risk aversion and with some experimental findings.

AB - This paper discusses two problems. (a) What happens to the conditional risk premium that a decision maker is willing to pay out of the middle prize in a lottery to avoid uncertainty concerning the middle prize outcome, when the probabilities of other prizes change? (b) What happens to the increase that a decision maker is willing to accept in the probability of an unpleasant outcome in order to avoid ambiguity concerning this probability, when this probability increases? We discuss both problems by using anticipated utility theory, and show that the same conditions on this functional predict behavioral patterns that are consistent both with a natural extension of the concept of diminishing risk aversion and with some experimental findings.

KW - ambiguous probabilities

KW - anticipated utility theory

KW - conditional risk premium

UR - http://www.scopus.com/inward/record.url?scp=0011432290&partnerID=8YFLogxK

U2 - 10.1007/BF00056141

DO - 10.1007/BF00056141

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AN - SCOPUS:0011432290

SN - 0895-5646

VL - 1

SP - 333

EP - 347

JO - Journal of Risk and Uncertainty

JF - Journal of Risk and Uncertainty

IS - 3

ER -