scholarly journals Dual Moments and Risk Attitudes

2021 ◽  
Author(s):  
Louis R. Eeckhoudt ◽  
Roger J. A. Laeven
Keyword(s):  
Risk Aversion ◽  
Risk Premium ◽  
Absolute Risk ◽  
Global Risk ◽  
Local Approach ◽  
Local Index ◽  
Absolute Risk Aversion ◽  
Rank Dependent Utility ◽  
Mean And Variance ◽  
Kenneth Arrow

The well-known Pratt–Arrow approximation, developed independently by John W. Pratt and Kenneth Arrow, provides an insightful dissection of the risk premium under the expected utility (EU) model. It is given by one-half the product of the variance of the risk and the local index of absolute risk aversion of the decision maker. Quite surprisingly, despite many important developments on “global” risk aversion in non-EU models, the “local” approach to risk aversion has received little attention outside EU. By considering the first two dual moments, mean and maxiance, on equal footing with the first two primal moments, mean and variance, the authors develop a dissection of the risk premium under the popular rank-dependent utility (RDU) model. This yields a simple approximation to the risk premium and a local index of absolute risk aversion under the RDU model.

DE FINETTI ON RISK AVERSION

2009 ◽  
Vol 25 (2) ◽  
pp. 153-159
Author(s):  
Joseph B. Kadane ◽  
Gaia Bellone
Keyword(s):  
Risk Aversion ◽  
Absolute Risk ◽  
Risk Premia ◽  
Absolute Risk Aversion ◽  
Kenneth Arrow ◽  
De Finetti ◽  
Constant Absolute Risk Aversion ◽  
Special Case

According to Mark Rubinstein (2006) ‘In 1952, anticipating Kenneth Arrow and John Pratt by over a decade, he [de Finetti] formulated the notion of absolute risk aversion, used it in connection with risk premia for small bets, and discussed the special case of constant absolute risk aversion.’ The purpose of this note is to ascertain the extent to which this is true, and at the same time, to correct certain minor errors that appear in de Finetti's work.

Constant Absolute Risk Aversion, Bankruptcy, and Wealth-Dependent Decisions

1980 ◽  
Vol 53 (3) ◽  
pp. 285 ◽  
Author(s):  
Steven A. Lippman ◽  
John J. McCall ◽  
Wayne L. Winston
Keyword(s):  
Risk Aversion ◽  
Absolute Risk ◽  
Absolute Risk Aversion ◽  
Constant Absolute Risk Aversion

On the relationship between absolute prudence and absolute risk aversion

2006 ◽  
Vol 29 (2) ◽  
pp. 155-160 ◽  
Author(s):  
Mario A. Maggi ◽  
Umberto Magnani ◽  
Mario Menegatti
Keyword(s):  
Risk Aversion ◽  
Absolute Risk ◽  
Absolute Risk Aversion ◽  
The Relationship

Fractional Degree Stochastic Dominance

2020 ◽  
Vol 66 (10) ◽  
pp. 4630-4647 ◽  
Author(s):  
Rachel J. Huang ◽  
Larry Y. Tzeng ◽  
Lin Zhao
Keyword(s):  
Lower Bound ◽  
Risk Aversion ◽  
Stochastic Dominance ◽  
Absolute Risk ◽  
Comparative Statics ◽  
Risk Averse ◽  
Absolute Risk Aversion ◽  
Risk Apportionment ◽  
Lottery Choices ◽  
Increase In Risk

We develop a continuum of stochastic dominance rules for expected utility maximizers. The new rules encompass the traditional integer-degree stochastic dominance; between adjacent integer degrees, they formulate the consensus of individuals whose absolute risk aversion at the corresponding integer degree has a negative lower bound. By extending the concept of “uniform risk aversion” previously proposed in the literature to high-order risk preferences, we interpret the fractionalized degree parameter as a benchmark individual relative to whom all considered individuals are uniformly no less risk averse in the lottery choices. The equivalent distribution conditions for the new rules are provided, and the fractional degree “increase in risk” is defined. We generalize the previously defined notion of “risk apportionment” and demonstrate its usefulness in characterizing comparative statics of risk changes in fractional degrees. This paper was accepted by David Simchi-Levi, decision analysis.

An Alternative Characterization of Decreasing Absolute Risk Aversion

Econometrica ◽  
1983 ◽  
Vol 51 (1) ◽  
pp. 223 ◽  
Author(s):  
Philip H. Dybvig ◽  
Steven A. Lippman
Keyword(s):  
Risk Aversion ◽  
Absolute Risk ◽  
Absolute Risk Aversion ◽  
Alternative Characterization

scholarly journals Are Invisible Hands Good Hands in Health Care Markets? Extension

2017 ◽  
Vol 17 (1) ◽  
Author(s):  
Hao Wang
Keyword(s):  
Health Care ◽  
Health Insurance ◽  
Risk Aversion ◽  
Social Welfare ◽  
Absolute Risk ◽  
Health Care Markets ◽  
Risk Averse ◽  
Absolute Risk Aversion ◽  
Insurance Policies ◽  
Equilibrium Level

AbstractA previous study finds that increased competition in health care markets improves social welfare, although consumers use “too much” health care when they have health insurance. The analysis assumes that consumers have a constant Arrow-Pratt coefficient of absolute risk aversion. This note shows that this finding can be extended to the case where consumers are simply risk averse. Furthermore, if insurers offered insurance policies with slightly lower usage prices than the equilibrium level, social welfare would be improved.

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