Some extensions of Luce's measures of risk (Q153962)

We extend measures of risk proposed by \textit{R. D. Luce} [ibid. 12, 217- 228 (1980; Zbl 0442.62010); correction ibid. 13, 381 (1981)]. A new exponential model of risk is developed that may be empirically more acceptable than the log model of Luce. The expectation principle is often employed in the construction of measures of risk. Empirical studies, however, suggest that this principle may not be valid. We suggest a generalization of the expectation principle and show as examples how two measures of Luce can be modified to incorporate this generalized expectation principle. Finally, the gambles with gains only are perceived by some subjects to have no risk at all. A new concept of riskiness that is based on the choice between two gambles is defined.