Journal ArticleDOI
The Utility Analysis of Choices Involving Risk
TLDR
In this paper, the authors suggest that an important class of reactions of individuals to risk can be rationalized by a rather simple extension of orthodox utility analysis, i.e., individuals frequently must, or can, choose among alternatives that differ, among other things, in the degree of risk to which the individual will be subject.Abstract:
T vHE purpose of this paper is to suggest that an important class of reactions of individuals to risk can be rationalized by a rather simple extension of orthodox utility analysis. Individuals frequently must, or can, choose among alternatives that differ, among other things, in the degree of risk to which the individual will be subject. The clearest examples are provided by insurance and gambling. An individual who buys fire insurance on a house he owns is accepting the certain loss of a small sum (the insurance premium) in preference to the combination of a small chance of a much larger loss (the value of the house) and a large chance of no loss. That is, he is choosing certainty in preference to uncertainty. An individual who buys a lottery ticket is subjecting himself to a large chance of losing a small amount (the price of the lottery ticket) plus a small chance of winning a large amount (a prize) in preference to avoiding both risks. He is choosing uncertainty in preference to certainty.read more
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Book ChapterDOI
Prospect theory: an analysis of decision under risk
Daniel Kahneman,Amos Tversky +1 more
TL;DR: In this paper, the authors present a critique of expected utility theory as a descriptive model of decision making under risk, and develop an alternative model, called prospect theory, in which value is assigned to gains and losses rather than to final assets and in which probabilities are replaced by decision weights.
Journal ArticleDOI
Toward a positive theory of consumer choice
TL;DR: The economic theory of the consumer is a combination of positive and normative theories as discussed by the authors, which describes how consumers should choose, but it is also described how they do choose, and in certain well-defined situations many consumers act in a manner that is inconsistent with economic theory.
Posted Content
Risk as Feelings
TL;DR: It is shown that emotional reactions to risky situations often diverge from cognitive assessments of those risks, and when such divergence occurs, emotional reactions often drive behavior.
Journal ArticleDOI
Risk as feelings.
TL;DR: This article proposed the risk-as-feelings hypothesis, which highlights the role of affect experienced at the moment of decision making, and showed that emotional reactions to risky situations often diverge from cognitive assessments of those risks.
Journal ArticleDOI
Liquidity Preference as Behavior towards Risk
TL;DR: In this article, the authors derived the liquidity preference schedule from some assumptions regarding the behavior of the decision-making units of the economy, and those assumptions are the concern of this paper.