Abstract
Loss aversion is traditionally defined in the context of lotteries over monetary payoffs. This paper extends the notion of loss aversion to a more general setup where outcomes (consequences) may not be measurable in monetary terms and people may have fuzzy preferences over lotteries, i.e., they may choose in a probabilistic manner. The implications of loss aversion are discussed for expected utility theory and rank-dependent utility theory as well as for popular models of probabilistic choice such as the constant error/tremble model and a strong utility model (that includes the Fechner model of random errors and Luce choice model as special cases).
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I am grateful to the editor, one anonymous referee, and participants of the BBL-seminar at the University of Innsbruck (June 4th, 2009) for their helpful comments.
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Blavatskyy, P.R. Loss aversion. Econ Theory 46, 127–148 (2011). https://doi.org/10.1007/s00199-009-0504-7
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DOI: https://doi.org/10.1007/s00199-009-0504-7
Keywords
- Loss aversion
- More loss averse than
- Nonmonetary outcomes
- Probabilistic choice
- Rank-dependent utility theory