Risk aversion in cumulative prospect theory

Ulrich Schmidt, Horst Zank

Research output: Contribution to journalArticlepeer-review


This paper characterizes the conditions for strong risk aversion and second-order stochastic dominance for cumulative prospect theory. Strong risk aversion implies a convex weighting function for gains and a concave one for losses. It does not necessarily imply a concave utility function. The latter does follow if the weighting functions are continuous. By investigating the exact relationship between loss aversion and strong risk aversion, a natural index for the degree of loss aversion is derived. © 2008 INFORMS.
Original languageEnglish
Pages (from-to)208-216
Number of pages8
Issue number1
Publication statusPublished - Jan 2008


  • Cumulative prospect theory
  • Decision analysis theory
  • Loss aversion
  • Risk
  • Risk aversion
  • Second-order stochastic dominance


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