This paper aims to better understand the testable predictions of representing risk preferences through the curvature of a function. Our core insight is that certain sets of decisions that imply different curvature are incompatible and cannot be jointly represented by the same function. For example, it is incompatible for a person to be consistently risk-adverse in one decision while being consistently risk-seeking in another. We explore how this simple insight places a large amount of structure on allowable decisions. Furthermore, we show how this structure connects preferences over all types of lottery choices. We start with the most predominant theory of risk preferences in Economics, Expected Utility Theory (EUT), and then discuss how our results generalize to other theories that represent risk through curvature (such as Prospect Theory).

About Behavioural and Economics Science Cluster e-seminars

An online seminar series on Experimental and Behavioural Economics organized by the Behavioral and Economic Science Cluster (BESC) of the School of Economics at The University of Queensland.

Our seminars take place fortnightly via Zoom on Wednesdays at 10 am or 5 pm (AEST), depending on whether the guest speaker is streaming from US/Australia or Europe respectively.

Seminars consist of a 60-minute presentation followed by 15 minutes of Q&A.

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Room 629, Level 6, Colin Clark Building (#39), UQ St Lucia Campus or Zoom: https://uqz.zoom.us/j/87897991126