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Axiomatic Models of Perceived Risk

  1. Jianmin Jia1,
  2. James S. Dyer2,
  3. John C. Butler3

Published Online: 14 JAN 2011

DOI: 10.1002/9780470400531.eorms0079

Wiley Encyclopedia of Operations Research and Management Science

Wiley Encyclopedia of Operations Research and Management Science

How to Cite

Jia, J., Dyer, J. S. and Butler, J. C. 2011. Axiomatic Models of Perceived Risk. Wiley Encyclopedia of Operations Research and Management Science. .

Author Information

  1. 1

    The Chinese University of Hong Kong, Department of Marketing, Faculty of Business Administration, Shatin, Hong Kong

  2. 2

    The McCombs School of Business, University of Texas at Austin, Department of Information, Risk, and Operations Management, Austin, Texas

  3. 3

    The McCombs School of Business, University of Texas at Austin, Department of Finance, Austin, Texas

Publication History

  1. Published Online: 14 JAN 2011

Abstract

This article presents two classes of measures for perceived risk based on decomposing a lottery into its mean and its dispersion about the mean, or standard risk. One of the classes of risk measures presumes that there is no risk when there is no uncertainty involved, and the other allows different degenerate lotteries to be evaluated with different values of “risk.” The former has more prescriptive appeal in risky decision making, but the latter may have more descriptive power for subjective risk judgments. These risk measures can also incorporate the asymmetric effects of losses and gains on perceived risk when an appropriate form of the standard measure of risk is applied. These perceived risk models unify a large body of empirical evidence regarding risk judgments, and provide sufficient flexibility to capture better perceptions of risk than previously developed risk models. Further, they provide clear ways to accommodate financial measures of risk and psychological measures of risk, and they can be incorporated into preference models based on mean-risk trade-offs.

Keywords:

  • perceived risk;
  • risk measurement;
  • risk-value trade-off;
  • decision making under risk