Risk willingness and perceived utilities to explain risky investment choices: A behavioral model

Journal article


Cheng, Philip Y. K.. (2019). Risk willingness and perceived utilities to explain risky investment choices: A behavioral model. Journal of Behavioral Finance. 20(3), pp. 255-266. https://doi.org/10.1080/15427560.2018.1506785
AuthorsCheng, Philip Y. K.
Abstract

The author develops a descriptive behavioral model to explain investment choices in risky assets. Relative to many expected utility theories, the model has advances in some concepts: (a) integrated risk preferences along a continuum of risk willingness, with specific considerations to probabilities of both gains and losses, thus distinguishing risk-averse from risk-venturous investors; (b) third and fourth order of risk preferences corresponding to third and fourth moments of distributions of asset returns; (c) heterogeneous perceived utilities with utilitarian, hedonic, social, and risk-willing dimensions; and (d) risk-willing utilities functions for gains and losses, specifically to explain the observed asymmetries in risk preferences between them. The author discusses the qualitative factors that affect investors’ behavior in risky choices, but still explains their decisions with the traditional concept of utilities. The author validates his model qualitatively against Tversky and Kahneman’s [1992] criteria of an adequate descriptive theory of choice before he concludes.

Keywordsrisk willingness; integrated risk preferences; perceived utilities
Year2019
JournalJournal of Behavioral Finance
Journal citation20 (3), pp. 255-266
PublisherRoutledge
ISSN1542-7560
Digital Object Identifier (DOI)https://doi.org/10.1080/15427560.2018.1506785
Scopus EID2-s2.0-85059028811
Research or scholarlyResearch
Page range255-266
Publisher's version
License
All rights reserved
File Access Level
Controlled
Output statusPublished
Publication dates
Online20 Dec 2018
Publication process dates
Deposited13 Jan 2022
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