The values of relative risk aversion and prudence: A context-free interpretation
AbstractIn this paper we apply to multiplicative lotteries the idea of preference for "harm disaggregation" that was used for additive lotteries in order to interpret the signs of successive derivatives of a utility function. In this way, we can explain in general terms why the values of the coefficients of relative risk aversion and relative prudence are usually compared respectively to 1 and 2. We also show how these values partition the sets of risk averse and/or prudent decision makers into two subgroups.
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Bibliographic InfoArticle provided by Elsevier in its journal Mathematical Social Sciences.
Volume (Year): 58 (2009)
Issue (Month): 1 (July)
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Web page: http://www.elsevier.com/locate/inca/505565
Relative risk aversion Relative prudence;
Other versions of this item:
- EECKHOUDT, Louis & ETNER, Johanna & SCHROYEN, Fred, . "The values of relative risk aversion and prudence: A context-free interpretation," CORE Discussion Papers RP -2162, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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