Bray Theory Workshop

Source preference is the assertion that between two prospects yielding the same distribution of monetary rewards, decision makers may have a strict preference for one over the other. Evidence on the home bias reveals source preference strong enough to preclude investors from taking advantage of diversification opportunities. We show that the EUU model provides a suitable framework for analyzing source preference and the home bias by providing a rich class of sources. We characterize EUU decision makers' risk attitudes within each source, relate these attitudes to uncertainty aversion, source preference and violations of the independence axiom.