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arXiv · 2509.14732

Outside options and risk attitude

Gregorio Curello·Ludvig Sinander·Mark Whitmeyer
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Abstract

We uncover a close link between outside options and risk attitude: when a decision-maker gains access to an outside option, her behaviour becomes less risk-averse, and conversely, any observed decrease of risk-aversion can be explained by an outside option having been made available. We characterise the comparative statics of risk-aversion, delineating how effective risk attitude (i.e. actual choice among risky prospects) varies with the outside option and with the decision-maker's 'true' risk attitude. We prove that outside options are special: among transformations of a decision problem, those that amount to adding an outside option are the only ones that always reduce risk-aversion.

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econ.TH

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Gregorio Curello, Ludvig Sinander, Mark Whitmeyer. 2025-09-18. Outside options and risk attitude. https://arxiv.org/abs/2509.14732

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