Probabilistic Insurance and Anticipated Utility

Probabilistic Insurance

Probabilistic insurance is an insurance policy involving a small probability that the consumer will not be reimbursed. Survey data suggest that people dislike probabilistic insurance and demand more than a 20% reduction in the premium to compensate for a 1% default risk. While these preferences are intuitively appealing they are difficult to reconcile with expected utility theory. Under highly ...

Some Remarks on Qu|ggin's Anticipated Utility*

Anticipated Utility : a Measure Representation Approach

This paper presents axioms which imply that a preference relation over lotteries can be represented by a measure of the area above the distribution function of each lottery. A special case of this family is the anticipated utility functional. One additional axiom implies this theory. This functional is then extended for the case of vectorial prizes.

PRECAUTIONARY SAVING AND RISK AVERSION An Anticipated Utility Approach

One of the surprises that came with the development and applications of expected utility theory to economics was the realization that risk aversion alone does not give rise to precautionary saving. As modeled by Leland (1968), precautionary saving was interpreted as an increase in saving in the current period if future income has the same mean but becomes less certain. Leland found that existen...

AUSI expected utility: An anticipated utility theory of relative disappointment aversion

In this paper we provide an axiomatization for a representation of preferences over lotteries that is only one parameter richer than expected utility. Our model is a special case of Rank-Dependent Expected Utility. Moreover, we show that the same restriction on this parameter is required for: risk aversion; intuitive comparative static results for a reasonably general class of economically inte...