Loss Aversion and State-Dependent Linear Utility Functions for Monetary Returns

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Somdeb Lahiri

Abstrakt

We present a theory of expected utility with state-dependent linear utility functions for monetary returns, that incorporates the possibility of loss-aversion. Our results relate to “first order stochastic dominance”, “mean-preserving spread”, “increasing-concave linear utility profiles” and “risk aversion”. As an application of the expected utility theory developed here, we analyze the contract that a monopolist would offer in an insurance market that allowed for partial coverage of loss.

Article Details

Jak cytować
Lahiri , S. (2025). Loss Aversion and State-Dependent Linear Utility Functions for Monetary Returns. Metody Ilościowe W Badaniach Ekonomicznych, 26(1), 22–35. https://doi.org/10.22630/MIBE.2025.26.1.3
Bibliografia

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Karni E. (1985) Decision Making Under Uncertainty: The Case of State-Dependent Preferences. Harvard University Press. (Crossref)

Lahiri S. (2023a) Understanding Expected Utility for Decision Making. Management Studies, 11(2), 93-104.

Lahiri S. (2023b) Understanding Ramsey-de Finetti Probabilities and the St. Petersburg Paradox. Economics and Management Information, 2(2), 1 4. https://doi.org/10.58195/emi.v2i2.91 (Crossref)

Lahiri S. (2024) Weak Arbitrage Theorem Incorporating Loss Aversion. Preprints. https://doi.org/10.20944/preprints202411.0287.v1 (Crossref)

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