History-Dependent Risk Attitude

The authors propose a model of History-Dependent Risk Attitude (HDRA), allowing the attitude of a Decision-Maker (DM) towards risk at each stage of a T-stage lottery to evolve as a function of his history of disappointments and elations in prior stages. They establish an equivalence between the existence of an HDRA representation and two documented cognitive biases. First, the DM's risk attitudes are reinforced by prior experiences: he becomes more risk averse after suffering a disappointment and less risk averse after being elated. Second, the DM displays a primacy effect: early outcomes have the strongest effect on risk attitude.

Provided by: Yale University Topic: Data Management Date Added: Feb 2011 Format: PDF

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