Abstract
A descriptive model of risk taking is presented according to which the utility of a choice of a risk-filled course of action is a function of the utility values and the probabilities of the outcomes of this choice and of an individual parameter indicating an inclination to take risks of a certain magnitude. According to this model, favorable and unfavorable outcomes are weighed differently in decisions. The moments of the probability distribution over the utility values of outcomes are not explicitly considered. The model has been tested by asking 71 university-level students to design risk-filled action alternatives assumed to be equal in utility to alternatives having only one outcome. Outcomes were fictitious and monetary. The risk-taking model gives a better explanation of the utility of alternatives than a model according to which expected utility is maximized, but the improvement is rather small. According to the model, the subjects were on the average somewhat more cautious than would be implied by the maximization of expected utility. However, it proved problematic to identify simultaneously the inclination to take risks and the utility values of outcomes. As expected, the utility function obtained when risk taking was assumed to exist was concave but less so than when no risk taking was assumed to exist. The possibilities of using the model in further research are discussed.
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Dahlbäck, O. An experimental analysis of risk taking. Theor Decis 29, 183–202 (1990). https://doi.org/10.1007/BF00126801
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DOI: https://doi.org/10.1007/BF00126801