Paper: arXiv 2309.03003

Authors: Atilla Aras

Abstract

The aim of this study is to present proofs for new theorems. Basic thoughts of new definitions emerge from the decision-making under uncertainty in economics and finance. Shape of the certain utility curve is central to standard definitions in determining risk attitudes of investors. Shape alone determines risk behavior of investors in standard theory. Although the terms risk-averse, risk-loving, and risk-neutral are equivalent to strict concavity, strict convexity, and linearity, respectively, in standard theory, strict concavity or strict convexity, or linearity are valid for certain new definitions. The connection between the curvature of utility curve and risk attitude is broken for the new definitions. For instance, convex utility curve may show risk-averse behavior under new definitions. Additionally, this paper has proved that new definitions are richer than standard ones when shape is considered. Hence, it can be stated that new definitions are broader than standard definitions from the viewpoint of shape. With all of these, it has been demonstrated that the theorems and proofs in this study extend the standard utility theory in an important way.

Complexity vs Empirical Score

  • Math Complexity: 6.5/10
  • Empirical Rigor: 1.0/10
  • Quadrant: Lab Rats — theoretically deep, empirically untested

Why this score: The paper provides a theoretical re-examination of standard expected utility theory by decoupling utility curve curvature from traditional risk attitudes through mathematical proofs. However, it is entirely theoretical with no empirical validation, market data, or backtesting to demonstrate real-world applicability.

Research Flowchart

  flowchart TD
    A["Research Goal: Re-examine Risk Attitudes & Utility Curve Curvature"] --> B["Input: Decision-Making Under Uncertainty Framework"]
    B --> C["Methodology: Mathematical Proofs & Curvature Analysis"]
    C --> D["Computational Analysis: Comparing Standard Theory vs. New Definitions"]
    D --> E["Finding 1: Curvature-Risk Attitude Connection Broken (e.g., Convex = Risk-Averse)"]
    D --> F["Finding 2: New Definitions Broaden & Extend Standard Utility Theory"]