Choice Under Risk

This course provides an in-depth exploration of decision-making under risk, bridging theoretical, experimental, and behavioral perspectives. It begins with the foundations of Expected Utility Theory and its axiomatic basis, before addressing classic experimental violations such as the Allais paradox and Rabin's calibration theorem. The course then reviews models that enhance descriptive accuracy, including Rank-Dependent Utility and Prospect Theory. The course will then review the empirical challenges of measuring individual risk preferences (the so-called risk elicitation puzzle). The final part of the course introduces two frontier approaches: cognitive imprecision, which attributes observed behavior to noisy cognition rather than preferences, and a new framework aiming to reconcile economists' definition of risk with the subjective perception by decision-makers