Dual Approaches to the Analysis of Risk Aversion
AbstractWe present a dual formulation of choice under uncertainty based on a few simple assumptions about preferences. It is shown that the additive separability restriction on preferences, key to expected-utility theory, can be dropped with little loss of analytic power for a broad class of choice problems. Dual risk premiums are characterized, and it is shown that placing various invariance restrictions on them leads naturally to generalizations of the concepts of CARA, CRRA, and LRT familiar from expected-utility theory. Each of these generalizations conforms to a notion of homotheticity. Copyright (c) The London School of Economics and Political Science 2006.
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Bibliographic InfoArticle provided by London School of Economics and Political Science in its journal Economica.
Volume (Year): 74 (2007)
Issue (Month): 294 (05)
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Other versions of this item:
- Chambers, Robert G & Quiggin, John, 2006. "Dual approaches to the analysis of risk aversion," Risk and Sustainable Management Group Working Papers 151175, University of Queensland, School of Economics.
- Chambers, Robert G. & Quiggin, John C., 2002. "Dual Approaches To The Analysis Of Risk Aversion," Working Papers 28606, University of Maryland, Department of Agricultural and Resource Economics.
- Robert G. Chambers & John Quiggin, 2006. "Dual Approaches to the Analysis of Risk Aversion," Risk & Uncertainty Working Papers WPR06_1, Risk and Sustainable Management Group, University of Queensland.
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
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