Loading...
Risk willingness and perceived utilities to explain risky investment choices: A behavioral model
Cheng, Philip Y. K.
Cheng, Philip Y. K.
Author
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.
Keywords
risk willingness, integrated risk preferences, perceived utilities
Date
2019
Type
Journal article
Journal
Journal of Behavioral Finance
Book
Volume
20
Issue
3
Page Range
255-266
Article Number
ACU Department
Peter Faber Business School
Faculty of Law and Business
Faculty of Law and Business
Collections
Relation URI
Source URL
Event URL
Open Access Status
License
All rights reserved
File Access
Controlled