Discrete Arrow–Pratt indexes for risk and uncertainty

Aurélien Baillon*, Olivier L’Haridon

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

2 Citations (Scopus)

Abstract

The Arrow–Pratt index, a gold standard in studies of risk attitudes, is not directly observable from choice data. Existing methods to measure it rely on parametric assumptions. We introduce a discrete Arrow–Pratt index, and its relative counterpart, that can be directly obtained from choices. Our approach is general: it is (i) non-parametric, (ii) applicable to both risk and uncertainty, (iii) and robust to probability transformation, non-additive beliefs and multiple priors. Our index can also be used to characterize various decision models through various simple consistency requirements. We analyze its properties and demonstrate how it can be measured.

Original languageEnglish
JournalEconomic Theory
DOIs
Publication statusPublished - 7 Oct 2020

Bibliographical note

JEL Classification: C91, D81
Publisher Copyright:
© 2020, The Author(s).

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