Analysis Of Risk Aversion And Fuzzy Aversion

The main objective in this paper is devoted to introduce the characters about distortion risk measure, risk aversion and ambiguity aversion. Distortion risk measure plays a important character in modern finance. At the same time, risk aversion and ambiguity aversion also show their important effect in our economic lives. Risk can be found everywhere around ourslves. We can reduce our loss if we can recognize the risk and measure the risk accurately.The meaning of risk aversion is the investor’s averse attitude to the risk. Generally,the investor is not willing to undertake the risk. The investor prefer to the project which have less risk when they have the project that have same rate of return. In order to attract investors invest more in the project which has more risk we must ensure that they can get enough money. As a result, investment expectation is direct proportion to the risk.Ellsberg(1961) investigated that people prefer a lottery with a known probability distribution to a lottery an unknown probability distribution. This preference breaks the espected utility theory. But we can explain it across ambiguty aversion. Klibanoff et al.(2005)’s approach is more useful to study the effect of the ambiguity aversion among several approaches about aversion.Risk aversion means that a person’s preference when he faces risks. We can use risk aversion to describe a person’s willingness to pay for reducing the risk. Ambiguity aversion means that people hate the subjectivity indeterminacy or hate the objective world’s indeterminacy. People with ambiguity aversion prefer the known thing to the unknown thing when they make a decision in the uncertainty condition.We consider that the ambiguity of probability distribution assess the risk measure in this paper. In theory, all of the distributions of distortion risk measure are known. We assumethat there is an unknown parameter submitting to risk distribution, the indeterminacy may effect the decision of the decision maker, if the aversion is ambiguity.