History-dependent risk attitude

• 成果类型: Article
• 署名作者: Dillenberger, David; Rozen, Kareen
• 署名单位: University of Pennsylvania; Yale University; Yale University
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2015.01.020
• 发表日期: 2015
• 页码: 445-477
• 关键词: History-dependent risk attitude; Reinforcement effect; Primacy effect; Dynamic reference dependence

摘要

We propose a model of history-dependent risk attitude, allowing a decision maker's risk attitude to be affected by his history of disappointments and elations. The decision maker recursively evaluates compound risks, classifying realizations as disappointing or elating using a threshold rule. We establish equivalence between the model and two cognitive biases: risk attitudes are reinforced by experiences (one is more risk averse after disappointment than after elation) and there is a primacy effect (early outcomes have the greatest impact on risk attitude). In a dynamic asset pricing problem, the model yields volatile, path-dependent prices. (C) 2015 Elsevier Inc. All rights reserved.