Abstract
In this paper, we investigate the necessary and sufficient conditions for a decision maker to be monotone risk averse and left-monotone risk averse, respectively, in cumulative prospect theory (CPT). Our results show that the decision maker is more pessimistic than greedy if she is either monotone or left-monotone risk averse, which is similar to that of Chateauneuf et al. (Econ Theory 25(3):649–667, 2005) in the rank-dependent expected utility model. Detailed examples are presented to illustrate the main theorems. With this work, we make a progress in the characterizations of risk aversion in CPT, which is essential in understanding the features of CPT and its applications in finance and insurance.
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