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Willingness to pay for stochastic improvements of future risk under different risk aversion

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  • Wang, Hongxia
  • Wang, Jianli
  • Yin, Yick Ho

Abstract

Within a general intertemporal decision-making framework, this work shows one individual with more kth-degree (k=2,…,n) Ross risk aversion always chooses more current paying to improve his future payoff distribution when such stochastic improvement satisfies the nth-degree mean-preserving stochastic dominance. Moreover, when stochastic improvement of the future payoff distribution is not mean-preserving, the notions of linearly(quadratically)-restricted more Ross risk aversion proposed by Eeckhoudt, Liu and Meyer (2017) can help provide a clear-cut comparative statics analysis.

Suggested Citation

  • Wang, Hongxia & Wang, Jianli & Yin, Yick Ho, 2018. "Willingness to pay for stochastic improvements of future risk under different risk aversion," Economics Letters, Elsevier, vol. 168(C), pages 52-55.
    • Handle: RePEc:eee:ecolet:v:168:y:2018:i:c:p:52-55
    DOI: 10.1016/j.econlet.2018.04.005
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    References listed on IDEAS

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    Cited by:

    1. Wang, Jianli & Wang, Hongxia & Yick, Ho Yin, 2019. "How do changes in risk and risk aversion affect self-protection with Selden/Kreps–Porteus preferences?," Insurance: Mathematics and Economics, Elsevier, vol. 88(C), pages 1-6.

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    More about this item

    Keywords

    Ross risk aversion; Stochastic dominance; Self-protection; Saving;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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