Abstract

http://ssrn.com/abstract=1858769
 
 

Citations (3)



 
 

Footnotes (15)



 


 



Risky Curves: From Unobservable Utility to Observable Opportunity Sets


Daniel Friedman


University of California, Santa Cruz - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Shyam Sunder


Yale University - School of Management

June 6, 2011

Cowles Foundation Discussion Paper No. 1819

Abstract:     
Most theories of risky choice postulate that a decision maker maximizes the expectation of a Bernoulli (or utility or similar) function. We tour 60 years of empirical search and conclude that no such functions have yet been found that are useful for out-of-sample prediction. Nor do we find practical applications of Bernoulli functions in major risk-based industries such as finance, insurance and gambling. We sketch an alternative approach to modeling risky choice that focuses on potentially observable opportunities rather than on unobservable Bernoulli functions.

Number of Pages in PDF File: 30

Keywords: expected utility, risk aversion, St. Petersburg Paradox, decisions under uncertainty, option theory

JEL Classification: C91, C93, D11, D81, G11, G12, G22, L83

working papers series





Download This Paper

Date posted: June 10, 2011 ; Last revised: August 22, 2011

Suggested Citation

Friedman, Daniel and Sunder, Shyam, Risky Curves: From Unobservable Utility to Observable Opportunity Sets (June 6, 2011). Cowles Foundation Discussion Paper No. 1819. Available at SSRN: http://ssrn.com/abstract=1858769 or http://dx.doi.org/10.2139/ssrn.1858769

Contact Information

Daniel Friedman
University of California, Santa Cruz - Department of Economics ( email )
Social Sciences I
Santa Cruz, CA 95064
United States
831-459-4981 (Phone)
831-459-5900 (Fax)
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
Shyam Sunder (Contact Author)
Yale University - School of Management ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6160 (Phone)
203-432-6974 (Fax)
HOME PAGE: http://www.som.yale.edu/faculty/sunder/
Feedback to SSRN


Paper statistics
Abstract Views: 836
Downloads: 212
Download Rank: 85,626
Citations:  3
Footnotes:  15

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.281 seconds