A Theory of Decision-Making Under Risk as a Tradeoff between Expected Utility, Expected Utility Deviation and Expected Utility Skewness

摘要: This paper presents a new decision theory for modelling choice under risk. The is two-parameter generalization of expected utility theory. proposed assumes that maker: 1) behaves as if maximizing utility; but 2) may experience disappointment (elation) when the lottery’s outcome falls short (exceeds) lottery; and 3) have preference gambling (attraction/aversion to positively/negatively skewed lotteries). can rationalize fourfold pattern risk attitudes; common ratio effect reverse thereof (in certain types problems); Allais paradox in classical consequence problems — with an even split probability mass; violations betweenness axiom; switching behavior Samuelson’s example; ordinal, upper lower cumulative independence (which falsify rank-dependent prospect theory); reversals between valuations choice. Behavioral characterization (axiomatization) provided. In application insurance, full insurance actuarially unfair premium aversion probabilistic insurance. optimal portfolio investment, equity puzzle.