Risk averse preference models for normalised lotteries based on simulation
Summary: We propose a new risk-preference model for ranking pairs of normalised lotteries, random variables, each represents a risk factor obtained by converting the outcomes of the lottery into its mean multiplied by a risk factor. With the existence of an expected utility model, the preference ordering over a pair of such lotteries is converted into a risk-preference ranking over their risk factors. The proposed model is an efficient approximation model based on cumulative distribution functions using simulation. It can be used for analysing preferences between pairs of uncertain alternatives representing financial investment for risk-averse investors. Furthermore, unlike the other models, it can be applied to a variety of randomly distributed variables with different utility functions.
- Risk preferences over simple and compound public lotteries
- Nonmonotonic risk preferences over lottery comparison
- Estimating risk attitudes using lotteries: a large sample approach
- On some classes of normed and risk averse preferences
- Representing risk preferences in expected utility based decision models
- Recent developments in modelling preferences under risk
- Willingness-to-pay and willingness-to-accept for risky and ambiguous lotteries
- The normalized expected utility -- entropy and variance model for decisions under risk
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