Tuned risk aversion as interpretation of non-expected utility preferences

We introduce the notion of Tuned Risk Aversion as a possible interpretation of non-expected utility preferences. It refers to tuning patterns of risk (and ambiguity) aversion to the composition of a lottery (or act) at hand, assuming only an overall ‘budget’ for accumulated risk aversion over its sub-lotteries. This makes the risk aversion level applied to a part intrinsically depending on the whole, in a way that turns out to be in line with frequently observed deviations from the Sure-Thing Principle. This is illustrated by applying the concept to the Allais paradox and to the 50:51 example, related to ambiguity aversion. We give a general justification for applying the method in contexts where the law of one price does not hold, and derive unique updating from a substitution axiom induced by a non-recursive form of consistency. In a third example, we propose a solution to a well-known puzzle on consistency of decision making in the Ellsberg parado