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How do changes in risk and risk aversion affect self-protection with Selden/Kreps–Porteus preferences?

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

Abstract

This paper examines the determinants of optimal effort in an intertemporal self-protection model. We separate attitude toward risk and attitude toward intertemporal substitution by adopting Selden/Kreps–Porteus preferences. We not only explore the sufficient conditions on risk preferences for guaranteeing the unambiguous effects of changes in risk on the optimal effort level but also show how a change in risk aversion alone affects the optimal effort level.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:insuma:v:88:y:2019:i:c:p:1-6
    DOI: 10.1016/j.insmatheco.2019.05.004
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    More about this item

    Keywords

    Self-protection; Intertemporal substitution; Risk aversion; Stochastic dominance; Expected-utility;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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