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Theory and Decision

, Volume 64, Issue 2–3, pp 173–192 | Cite as

Dynamic Decision Making when Risk Perception Depends on Past Experience

  • Michèle Cohen
  • Johanna Etner
  • Meglena Jeleva
Article

Abstract

The aim of the article is to propose a preferences representation under risk where risk perception can be past experience dependent. A first step consists in considering a one-period decision problem where individual preferences are no more defined only on decisions but on pairs (decision, past experience). The obtained criterion is used in the construction of a dynamic choice model under risk. The article ends with an illustrative example concerning insurance demand. It appears that our model allows to explain modifications in the insurance demand behavior over time observed on the insurance markets for catastrophic risk and difficult to justify with standard models.

Keywords

dynamic decision making past experience rank dependent utility model recursive model risk perception 

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Copyright information

© Springer Science+Business Media LLC 2007

Authors and Affiliations

  • Michèle Cohen
    • 1
  • Johanna Etner
    • 1
    • 2
  • Meglena Jeleva
    • 1
    • 2
  1. 1.CES, University Paris1ParisFrance
  2. 2.GAINS, University of MaineLe MansFrance

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