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Risk aversion in expected intertemporal discounted utilities bandit problems

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Abstract

We consider a situation where an individual is facing an uncertain situation, but may costly alter his knowledge of the uncertainties. We study in this context how risk aversion may modify the individual search behavior. We consider a one-armed bandit problem (where one arm is safe and the other is risky) and study how the agent risk aversion can change the sequence of arms selected. The main result is that when the utility function is more concave, the agent has more chances to select the safe arm. We also discuss how search is affected by risk aversion.

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Authors and Affiliations

  1. Université Paris-Est, CERMICS, 6 et 8 avenue Blaise Pascal, 77455, Marne la Vallée Cedex 2, France

    Jean-Philippe Chancelier & Michel De Lara

  2. Université de Cergy-Pontoise, Cergy-Pontoise Cedex and ENPC, France

    André de Palma

Authors
  1. Jean-Philippe Chancelier
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  2. Michel De Lara
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  3. André de Palma
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Correspondence to Michel De Lara.

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Chancelier, JP., De Lara, M. & de Palma, A. Risk aversion in expected intertemporal discounted utilities bandit problems. Theory Decis 67, 433–440 (2009). https://doi.org/10.1007/s11238-008-9105-3

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  • DOI: https://doi.org/10.1007/s11238-008-9105-3

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