Models of Risk Preferences: Descriptive and Normative Challenges

Behavioural economists have developed alternatives to Expected Utility Theory, but these models are generally better descriptively but inferior normative models for guiding risky decisions. The Research in Experimental Economics series covers experimental economics, including theoretical, empirical, and field economic research.

Format: Hardback
Length: 264 pages
Publication date: 02 October 2023
Publisher: Emerald Publishing Limited

Behavioural economists have sought to expand the horizons of risk preference modelling by developing alternative descriptive and normative frameworks. One widely held perspective suggests that these alternative descriptive models offer greater clarity in capturing the intricacies of risk perception and decision-making, yet they may fall short in providing robust normative guidance for risky choices.

To delve into this intriguing debate, Models of Risk Preferences serves as a valuable compilation of studies that critically examine these two assertions from the perspective of experimental economics. While the Research in Experimental Economics series primarily focuses on laboratory experimental economics, it encompasses theoretical, empirical, and field economic research to foster a broader understanding of the experimental economics community.

Within this collection, scholars explore various alternative models of risk preference, including prospect theory, ambiguity aversion, and behavioral decision theory. These models aim to shed light on the cognitive processes underlying risk perception and decision-making, offering insights into how individuals weigh risks and make choices under different circumstances.

One key theme that emerges from the research is the notion that alternative descriptive models can provide a more comprehensive and nuanced understanding of risk preferences. These models often incorporate psychological insights, such as cognitive biases, heuristics, and emotions, which help explain why individuals may exhibit different risk attitudes and behaviors. By accounting for these cognitive factors, these models can offer a more accurate portrayal of human decision-making processes.

However, it is important to note that the superiority of alternative descriptive models over Expected Utility Theory in terms of normative guidance is a matter of ongoing debate. While these models may offer valuable insights into risk perception and decision-making, they may struggle to provide clear prescriptions for optimal risk management strategies. This is particularly evident in situations where risk preferences are complex, uncertain, or subject to moral dilemmas.

In conclusion, the development of alternative descriptive and normative models of risk preference has opened up new avenues for understanding human decision-making. While these models have the potential to enhance our understanding of risk perception and decision-making, it is crucial to recognize their limitations and to explore ways in which they can be integrated with Expected Utility Theory to provide more comprehensive and effective guidance for risky decisions.

Dimension: 229 x 152 (mm)
ISBN-13: 9781837972692