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Increases in skewness and three-moment preferences

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  • Eichner, Thomas
  • Wagener, Andreas

Abstract

We call an agent skewness affine if and only if his marginal willingness to accept a risk increases when the distribution of the risk becomes more skewed to the right. Skewness affinity is shown to be equivalent to the marginal rate of substitution between mean and variance of wealth being decreasing in the skewness. This property allows us to characterize the comparative static effect of increases in the skewness in quasi-linear decision problems. Over domains of skewness-comparable lotteries skewness affinity is equivalent to the von Neumann-Morgenstern utility index of relative temperance being smaller than three.

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Bibliographic Info

Article provided by Elsevier in its journal Mathematical Social Sciences.

Volume (Year): 61 (2011)
Issue (Month): 2 (March)
Pages: 109-113

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Handle: RePEc:eee:matsoc:v:61:y:2011:i:2:p:109-113

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Web page: http://www.elsevier.com/locate/inca/505565

Related research

Keywords: Mean Variance Skewness Skewness affinity;

References

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Cited by:
  1. Trino-Manuel Niguez & Ivan Paya & David Peel & Javier Perote, 2013. "Higher-order moments in the theory of diversification and portfolio composition," Working Papers 18297128, Lancaster University Management School, Economics Department.
  2. Thomas Eichner, 2013. "Increases in skewness and insurance," Economics Bulletin, AccessEcon, vol. 33(4), pages 2672-2681.

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