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Ulric B. and Evelyn L. Bray Social Sciences Seminar

Wednesday, February 24, 2021
12:00pm to 1:00pm
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Background Risk and Small-Stakes Risk Aversion
Luciano Pomatto, Assistant Professor of Economics, Caltech,

Abstract: We show that under plausible levels of background risk, no theory of choice under risk---such as expected utility theory, prospect theory, or rank dependent utility---can simultaneously satisfy the following three economic postulates: (i) Decision-makers are risk-averse over small gambles, (ii) they respect stochastic dominance, and (iii) they account for background risk.

Written with Xiaosheng Mu, Philipp Strack, and Omer Tamuz.

This seminar was originally scheduled for Wednesday, January 13.

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For more information, please contact Letty Diaz by email at [email protected].