Higher-Order Risk Attitudes for Non-Expected Utility

Paul van Bruggen, Roger J. A. Laeven, Gijs van de Kuilen

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Abstract

This paper extends the analysis of higher-order risk preferences to the domain of non-expected utility. We provide behavioral definitions of higher-order risk preferences that, besides under expected utility, retain validity under most popular non-expected utility models, and are readily amenable to experimentation. We implement our definitions in a measurement experiment with N = 227 respondents. The results provide evidence of probability-driven prudence both for gains and for losses. Furthermore, we find outcome prudent behavior for losses, but outcome-prudent neutral behavior for gains, suggesting that prudence as observed in most previous studies is primarily probabilistic in nature.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages67
Volume2024-019
Publication statusPublished - 2 Sept 2024

Publication series

NameCentER Discussion Paper
Volume2024-019

Keywords

  • higher-order risk attitudes
  • prudence
  • temperance
  • risk apportionment
  • non-expected utility theory
  • Self-protection

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