Dynamic Decision Making when Risk Perception Depends on Past Experience
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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.
Keywordsdynamic decision making past experience rank dependent utility model recursive model risk perception
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