Lecture Notes in Economics and Mathematical Systems
585
Founding Editors: M. Beckmann H.P. Künzi Managing Editors: Prof. Dr. G. Fandel Fachbereich Wirtschaftswissenschaften Fernuniversität Hagen Feithstr. 140/AVZ II, 58084 Hagen, Germany Prof. Dr. W. Trockel Institut für Mathematische Wirtschaftsforschung (IMW) Universität Bielefeld Universitätsstr. 25, 33615 Bielefeld, Germany Editorial Board: A. Basile, A. Drexl, H. Dawid, K. Inderfurth, W. Kürsten, U.Schittko
Robin Pope · Johannes Leitner Ulrike Leopold-Wildburger
The Knowledge Ahead Approach to Risk Theory and Experimental Evidence
With 51 Figures and 37 Tables
123
Dr. Robin Pope Experimental Economics Laboratory Bonn University Walter-Flex-Straße 3 53113 Bonn Germany
[email protected] Dr. Johannes Leitner Professor Dr. Ulrike Leopold-Wildburger Department of Statistics and Operations Research University of Graz Universitätsstraße 15/E 3 8010 Graz Austria
[email protected] [email protected]
Library of Congress Control Number: 2006934981
ISBN-10 3-540-38472-3 Springer Berlin Heidelberg New York ISBN-13 978-3-540-38472-4 Springer Berlin Heidelberg New York This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permission for use must always be obtained from Springer. Violations are liable to prosecution under the German Copyright Law. Springer is part of Springer Science+Business Media springer.com © Springer-Verlag Berlin Heidelberg 2007 The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Production: LE-TEX Jelonek, Schmidt & V¨ ockler GbR, Leipzig Cover-design: Erich Kirchner, Heidelberg SPIN 11838791
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Dedication To Ken Arrow for his encouragement of our focus on secondary (knowledge-ahead-based) satisfactions through his early recognition of our demonstrations that no rephrasing of expected utility theory can accommodate them, and that these lead to deliberate violations of dominance.
Foreword The joint work of Robin Pope, Johannes Leitner and Ulrike LeopoldWildburger presented in this little book makes a strong point for a new approach to decision making under risk. It emphasizes aspects of risk preferences largely neglected in the theoretical and experimental literature. Before the outcome of a risky decision is known a decision maker may feel worries or thrills about