Risk Aversion in Cumulative Prospect Theory

This paper characterizes the conditions for strong risk aversion and second-order stochastic dominance for cumulative prospect theory. Strong risk aversion implies a convex weighting function for gains and a concave one for losses. It does not necessarily imply a concave utility function. The latter does follow if the weighting functions are continuous. By investigating the exact relationship between loss aversion and strong risk aversion, a natural index for the degree of loss aversion is derived.

• 저널Management Science · 54(1) · 208–216
• 토픽Risk and Portfolio Optimization · Management Science and Operations Research
• DOI10.1287/mnsc.1070.0762
• 저자Ulrich Schmidt, Horst Zank