A world in which all agents demonstrate the "hyperbolic absolute" version of this behavior was used by Stiglitz and Cass to derive the two fund separation theorem.
A world in which all agents demonstrate the "hyperbolic absolute" version of this behavior was used by Stiglitz and Cass to derive the two fund separation theorem. It dominates above the horizontal axis of the inverse S-shaped probability-weighted curve, but not below the horizontal axis, in a phenomenon called the "re lection e鴁fect." This behavior is measured by a coe鴁送cient equal to the negative second derivative of the utility function divided by the 送rst derivative of the utility function, the Arrow-Pratt measure. Jensen's inequality can be used to prove that this behavior corresponds to a concave Von Neumann-Morgenstern utility function for an agent. Explanations for the Allais Paradox o ten invoke this behavior, as evidenced by the original "Prospect Theory" paper by Kahneman and Tversky. For 10 points, identify this microeconomic behavior exempli送ed in portfolio theory by a preference for safe, low-variance assets.
A world in which all agents demonstrate the "hyperbolic absolute" version of this behavior was used by Stiglitz and Cass to derive the two fund separation theorem.
risk aversion [or equivalents that convey propensity to take or not take risks]