Arrow--Pratt
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Probabilistic Risk Sensitivity and Loss Aversion in Cumulative Prospect Theory
Announce Type: cross Abstract: This paper develops a binary-gamble framework for characterizing risk sensitivity and loss aversion in Cumulative Prospect Theory (CPT). The proposed probabilistic risk-sensitivity metric is defined as a probability-threshold ratio that determines acceptance and preference thresholds in choice problems involving either a certain outcome and a binary gamble or two binary gambles. We show how standard notions of symmetric and non-symmetric bet aversion can be...